Talk Your Book: Making Money When Stocks Are Up or Down

Summary

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Animal Spirits: Talk Your Book - Making Money When Stocks Are Up or Down

Date: September 22, 2025
Hosts: Michael Batnick & Ben Carlson
Guest: Graham Day, CIO of Innovator ETFs

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Episode Overview

In this episode, Michael and Ben sit down with Graham Day, CIO of Innovator ETFs, to discuss the rise of "dual direction" defined outcome ETFs—funds designed to generate gains when the S&P 500 goes up (to a cap) or down (within certain limits). The conversation dives deep into how these products work, the behavioral and practical reasons for their popularity, and how they aim to address investor concerns about both upside and downside scenarios. The trio also explores how these ETFs fit into portfolios, compare to traditional allocations, and what makes their structure appealing to both clients and advisors.

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Key Discussion Points & Insights

1. The Defined Outcome ETF Space & Investor Demand

• Growth and Popularity:

  • The hosts highlight the explosive demand for products that blend equity-like exposures with some protection or predictability—structured notes, annuities, and increasingly, defined outcome ETFs.
  • Despite concerns of overlap or competition, both insurance-style products and ETFs are growing, reflecting high demand among advisors and investors.
    • “There is just a huge demand from advisors and investors for this type of product.” — Michael [00:43]

• Behavioral Perspective:

  • The appeal is as much psychological as quantitative: people desire certainty in outcomes, especially after market shocks.
    • “I think that doesn't take into account the behavioral aspect... It's very hard to get that in the investing world.” — Ben [02:08]

2. What Is a Dual Direction Buffer ETF? (with Graham Day)

• Basic Structure:

  • Provides upside participation to a capped level (e.g., 8.7% in a recent 15% buffer product) and, crucially, offers a one-to-one positive return if the S&P 500 falls—up to a set downside threshold (e.g., 15%).
  • After the threshold, it functions as a buffer, absorbing a fixed chunk of losses, but not providing further positive returns as the market keeps falling.
    • “If the market's down 10 in one year, you're up 10%.” — Graham [09:35]
    • “If the S&P is up 6, you're up 6. If the S&P is up 10, you hit your performance cap of 8.7%.” — Graham [07:09]

• Timeframe and Mechanics:

  • Most products use a 12-month “outcome period”—the defined participation and buffer mechanics are delivered at the end of the period, not on a daily basis.
  • The ETF tracks the S&P 500’s price (not total return) with its unique “option stack” approach.
    • “To realize the full dual direction benefit, the full upside cap, it's over the entirety of the one year outcome period.” — Graham [08:04]

3. Interplay of Upside, Downside, & Buffers

• How the Buffer Works:

  • Example: In a dual direction 15% buffer ETF, if the S&P falls up to 15%, the ETF rises by the same percentage. Beyond 15%, it absorbs a fixed level of losses (the buffer); additional market losses beyond that reduce the ETF’s value beyond the buffer’s protection.
    • “At the 15% level, it switches from the dual direction to a buffer.” — Graham [10:50]
    • “If the market is down 20, you're down 5.” — Graham [11:25]

• Transition Point Explained:

  • The “flip” from gains to buffer protection isn’t always linear—there’s a rapid transition in performance from up 15% to down 1% as the S&P 500 crosses the -15% to -16% threshold.
    • “From minus 15 to minus 16... that's the transition from a dual direction down to a buffer.” — Graham [15:55]

• Historical Examples:

  • Referencing historical drawdowns (like 1962–63), the ETF would have performed better in moderate declines, illustrating the potentially substantial “upside” in bear markets up to the threshold, but cautioning about sharp drops beyond that.

4. Where Dual Direction ETFs Fit in Portfolios

• Not a Stock Market Replacement:

  • These products are meant for conservative or “risk-managed” allocations—competing more with bonds or structured notes than with equities themselves.
    • “I would assume, not a stock market replacement. This is your more conservative allocation, fixed income.” — Ben [21:45]
    • “How many strategies are out there that give you true inverse performance to the S&P 500? There’s none.” — Graham [22:23]

• Why Not Daily or Shorter Timeframes?:

  • One-year periods resonate with advisors and clients; daily resets would be impractical for communication and tax purposes, though shorter periods could emerge in the future.

5. Tax Efficiency and Comparison to Other Products

• ETF Structural Benefits:
  • Defined outcome ETFs avoid the credit risk of structured notes and annuities (as ETFs use centrally cleared options).
  • Tax deferral: Investors only pay taxes when selling, unlike taxable events for notes/annuities at maturity.
    • “The ability to say, hey, look, we're not going to pay any taxes on these products until we decide to sell. That is a huge value add.” — Graham [25:49]

6. Model Portfolios & Advisor Adoption

• Innovator’s In-House Models:
  • Innovator now offers in-house model portfolios blending these ETFs, aiming to offer a more “defined outcome version” of traditional stock/bond allocations.
    • “We have a team internally that’s been building that business out because...advisors want an easy-to-implement solution.” — Graham [29:38]

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Notable Quotes & Memorable Moments

• On Quant Critiques:
  “Yeah, shut up, dork. Nobody cares.” — Michael, jokingly about critics who focus on more ‘optimized’ but less accessible strategies [02:06]

• On Structure & Communication:
  “We want them to understand that really the dual direction benefit really stops at minus 15. That's...why I think advisors have trusted us—the way we communicate what the products do, we're always going to be as conservative and straightforward as possible.” — Graham [17:04]

• Behavioral/Practical Riff:
  “I didn't realize we were talking to the fun police.” — Michael, as Ben asks about tax timing [09:30]

• On Market Sentiment:
  “92% [of advisors] say over the next year the S and P is not going to return more than 10%. That's more bearish than we've...That’s how you know it’s not going to be.” — Graham & Michael [22:23–23:58]

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Timestamps for Key Segments

• [04:10] Are new ETFs client-driven or innovator-driven?
• [07:09] How dual direction buffer ETFs work (upsides and downsides explained)
• [09:35] Real-world examples: What happens if the market is down/up certain percentages?
• [11:25] Buffer flip, when you stop making money in a falling market
• [15:55] Historical hypothetical returns, transition zone between dual direction and buffer
• [22:23] Where do advisors use these? Bond/stock alternatives, diversifiers
• [25:49] Tax deferral benefits compared to annuities & notes
• [29:38] Model portfolios and their adoption among advisors

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Closing Thoughts

This episode provides a comprehensive overview of how defined outcome and dual direction ETFs work, why they’re popular, and how they can be used as tools by advisors aiming for more predictable outcomes for clients worried about both downside and upside in uncertain times. Innovator’s focus on clear communication and behavioral finance, combined with product structure, sets them apart. The talk is insightful for both seasoned professionals and individual investors curious about new ways to manage market risk.

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Further resources:

• Innovator ETFs: In-depth product sheets and examples.
• For episode questions, email: [e-mail]

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Transcript

[A]

Today's Animal Spirits Talk. Your book is brought to you by Innovator ETFs. Go to innovatoretfs.com to learn more about their whole new dual direction ETF suite. That's innovatoretfs.com.

[B]

Welcome to Animal Spirits, a show about markets, life and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Rithulz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.

[A]

Welcome to Animal Spirits with Michael and Ben. Michael, we've talked about the defined outcome ETF space for a number of years now and I can't recall who we were talking about this with a couple months ago. And our thought process was, well, the fact that you can now get these in a more liquid, tax efficient wrapper must mean that the insurance industry is pissed. Right? They must be happy, a hard time. And this person said, no, no, no, no. Actually these ETFs are growing, but the demand for those insurance like products is growing as well. The structured notes and such. And that I think surprised both of us. And I think what that tells you is that there is just a huge demand from advisors and investors for this type of product.

[C]

The only thing that investors like more than outcome are defined out. I'm sorry, damn it, I messed it up. The only thing they like more than income.

[B]

Ah.

[C]

Is defined outcome.

[A]

If you would have just nailed it.

[C]

Yeah, that's like, it is what it is. I'm a one take guy trips. One take guy new trips over is. I just, I just belly flopped the. The landing. It happens.

[A]

That's all right. Yes, but. And there's, there's people who've talked and said, I think, hey, Ben, you know.

[C]

The only thing investors like more.

[A]

3, 2, 1, go. But I feel like there's a lot of quantitative investors who look at these things and go, hey, actually this is not the most optimized way that you can do this. You could actually just create a portfolio using this, this, this.

[C]

Yeah, shut up, dork. Nobody cares.

[A]

But I think that doesn't take into account the behavioral aspect of the range. And we get into it on this podcast we talked to Graham day from Innovator ETFs, their CIO. And in their latest presentation they literally give these historical instances of one year period Here was the loss and here's what the gain would have been effectively. And I think that's cool to kind of get a better understanding of, like, okay, this is. If this happens, then if A happens, then B happens. It's very hard to get that in the investing world. Yeah, certainty, even if you like, it's obviously with any product, you can say, well, you would have done better if you'd have just done this. But without knowing the future, this is an interesting space to me. And Innovator is obviously bringing in tons of money. We always pet ourselves on the back for that one.

[C]

Credit to me. I didn't do it this time. Credit to me. Ben couldn't help himself. He had to take one more victory lap.

[B]

Just.

[A]

Just for the record, it is usually you. All right, so we talked to Graham Day. They have these new dual direction ETFs, dual directional ETFs, that up to a certain point give you a one to one if the market goes down, which is interesting because there really is not.

[C]

Stepping on the material. Let's just get to it.

[A]

All right, here's our talk with Graham.

[C]

Graham, welcome to the show.

[B]

Michael, Ben, it's great to be here. Thanks for having me.

[C]

All right, so Innovator Capital Management currently manages approximately $26 billion in ETFs. Is that all in buffers or is there other stuff in there?

[B]

No, Michael, it's primarily in buffers. But we have expanded the lineup over time. And really what we try to focus on are ETFs that fall under the defined outcome umbrella. So ETFs that give you known outcomes before you invest, that could be a buffer, it could be an accelerated etf, or it could be something new that we brought to the table. The dual direction ETFs as well.

[A]

Yeah, it looks like you guys have been in the lab and we've spoken to Bruce in the past a bunch about the different things that you've put out. Are, are your new ETFs coming because of client demand? And they're saying, hey, it's nice that you guys can do this and we can cap this and we can, you know, stop the downside on this. How about this? Is that how it works? Or do you guys just have. Are you guys just kind of constantly thinking of different ways that you can define these different outcomes?

[B]

But that's a great question. It's a little of both. That sometimes you need to put some products out there that maybe you're not getting a lot of feedback from advisors for, because sometimes they don't know what they need until you put it out there. But a lot of times we're building products based off of advisor demand. And so the dual direction is certainly one of those areas where what we've done is we've taken a payoff that's become extremely popular in the structured note in annuity world. And we had people saying, hey look, we love the buffers. Are you ever going to do a dual direction? And you know, you can think about, well, why do they need it? And we really started digging in, we realized that it's a really powerful story. Buffers protect you against initial losses. Dual direction allows you to make money in negative markets. And if you think about all the strategies that are out there that hope to provide some positive performance in negative equity markets, there's a lot of them that try to do something. And this is a strategy that you know exactly which equity markets that are negative that you can make money in. And even if those losses exceed the dual direction, you still have a built in buffer that protects against losses. So it's a pretty interesting development.

[C]

We think it's a powerful story. To your point, there are all sorts of strategies that rely on intuition, a little bit of wizardry in some cases, some market structural stuff, whatever the case may be, in the hopes of providing you downside protection in the event of a bear market. The dual direct directional. Now I was going to ask earlier, are we jumping the shark with dual directional buffers? I don't think so. I think you, you'll get there eventually where you put out something like this. Come on guys. I think, I think that there's going to be some demand for this. So the dual directional buffer ETFs Graham, to your point, provides certainty that if X happens to the downside, you will know in advance. Now of course there's a million details which we're about to get into. The maturity, the this, the that, the levels. All right, so why don't we get into it? What in the heck is a dual directional buffer etf?

[B]

Yeah, so Michael, just break it down really simple. Dual direction ETF is part of the defined outcome ETF lineup. And what the dual direction allows you to do is to track the performance of the S P500. And we're going to, we're going to use our 15 dual direction as the example. And so if we look at our most recent 15 dual direction ETF, it has an upside cap of 8.7%. That means you'll track one for one over a one year time frame with the S&P 500 to that 8.7% level. If the S&P's up 6, you're up 6. If the S&P is up 10, you're going to hit your performance gap of 8.7%.

[C]

Boy, Graham, this is, this is not at maturity. This is like if you buy this on January 1st and by March it's up 8.7, you could sell it and leave. And you're up 8.7 or is at maturity.

[B]

It's at maturity. It'll track directionally with the market. And in that example, Michael, if the S and p is up 8.76 months into a 12 month outcome period, we would expect to have some meaningful positive performance. Maybe we're up 5% at that point, but there's still six months of time value left in those options. And so again, this is to realize the full dual direction benefit, the full upside cap, it's over the entirety of the one year outcome period. So again, S&P is up 6, you're up 6. S&P is up 10, you hit that performance cap of 8.7.

[C]

Sorry to cut in again, but you know what I feel like you guys are going to do like the 7 minute abs type of thing. Like why not a 9 month outcome window? Why not a 6 month, why not a, why not a daily outcome period? Come on, get creative.

[B]

I mean you might see some, we'll call it innovation or some additional payoffs come at a later date. But the one year timeframe has resonated with advisors. It's because they can share with their clients. It's not an unreasonable amount of time. Daily. There's some daily stuff that's out there now. I don't see how that's an advisor tool. They're not going to be calling their clients every single day and say, hey, guess what the buffer is today? And oh, guess what happened? Yes.

[A]

Are there tax reasons for the one year period too? Because you want to get.

[B]

There's not.

[A]

Does it not matter?

[B]

It doesn't matter. It doesn't matter.

[C]

I didn't realize we were talking to the fun police.

[B]

So I mean we stick with the one year and then as demand dictates, like we've seen with buffers and our accelerated funds, we'll look at other outcome periods, maybe a three month outcome period or a six month outcome period. But where the dual direction gets really cool is in the negative market. So staying on that 15% dual direction, 8.7% cap on the upside in a negative market. Market's down 10 in one year, you're up 10%. If the market's down 15% in one year, you are up 15%. So that's a 30% spread in a negative market environment.

[A]

And it's a, and it's. Sorry, it's a one for one.

[B]

It's a one for one. It'S a true, you know, inverse 100%, inversely correlated or inverse performance, however you want to think about it, to the s and P500.

[A]

So my favorite stat is I look at the average returns in an up year and the average turns in a down year, and the average returns in an up year are like 20%. Call it 21%. And the average returns in down year, the market is down an average of 13%. So in that scenario, if it's average, you get that one for one and you're up 13%. But now what if we're down 20 and you hit that cap? Are you still just up the 15?

[B]

No. So that's where there's no free lunch. That's where at the 15% level, it switches from the dual direction to a buffer. So you're screwed. You're not screwed. Yeah, the market's down 20, you're only down 5, and so a lot of advisors.

[A]

Okay, okay. So 15 is the buffer level too.

[B]

Okay, 15 is the buffer level as well. So it's a dual direction. It has that buffer component in there.

[A]

But does that mean that you're then down? So if the market's down 20, are you down 10 because you get the 15 upside and then the 5 down, how does that, how does it net, does it net out?

[B]

If the market is down 20, you're down 5. So it switches from being a dual direction.

[A]

I got you.

[B]

Yes. To a buffer at that point.

[A]

So wait, so if you're. So let's say you're, you're approaching being down 15%, that means you're up 15, right?

[B]

Yep.

[A]

Is that a scenario where then you probably want to lock this thing in?

[B]

It's a great question. And so we'll, you know, we, we met with the team of advisors earlier this week and they, the question came up, okay, so what if the market's down 14% and we're in month 11, wouldn't. Am I going to be up 14%? The answer is no, not yet. And it's for the same reason that to Michael's earlier question, you gotta wait. Now, in that environment, would we expect the ETF to maybe be up 2, 3, 4%? Yeah, because it's the market's pricing and the probability of how often does it finish down 15% over a year, what are the odds of it exceeding those losses beyond that 15% level? But Ben, to your point, why we think these are so powerful is because most market losses happen within that zero to minus 15% range. So if you're a huge bear, you think the market we're looking for a 2000 AI bubble, 2008, the dual direction, it's going to protect you, but it's not really built for those markets. It's built for your run of the mill downside equity market environment. So 75% of all losses over a one year timeframe are usually 15% or less. And so that's why we think this is such a powerful tool. Because when you look at other asset classes, you look at bonds, for example, we still a lot of advisors, they're pouring money into bonds. It's crazy. If you look at the flow data they're taking in bonds or funds are taking in $2 for every dollar that's going into equity markets. We can talk about money market funds. Last year they've taken in almost a trillion dollars. Equity funds, 260 billion. So there's a lot of money that's running scared. We can talk about the AI bubble, but when you look at the big picture, people are prioritizing safety. And if you look at bonds and you look at, okay, the starting yield on a bond, 5%, what happens to bonds when the market has a typical equity correction that 0 to minus 15% range, bonds actually don't do very well. Their average return is about 1%. In those environments, bonds do a lot better, of course when their starting yield is a lot higher, but they do better in the severe equity corrections. And the same can be said about gold too. So if you're worried about tail event, we have some products that do extremely well until events. But if you're looking outside of equities, an equity based strategy, gold as well, long dated bonds tend to do well in those huge market corrections. But the average market correction, that 0 to 15%, that's where we see a huge gap. And it gives advisors a tool that they didn't have before in a tax efficient ETF wrapper.

[C]

So Graham, I'm looking at your PDF, your PowerPoint presentation, which by the way, credit to you guys, this is great stuff, really makes clear what you're trying to solve for. I'm looking at 1962. Hey, by the way, why are we using June? What's with June?

[B]

Well, because we Brought our first dual direction in. It's a July series ETF. So it gives you point to point exposure June 30th of whatever the, you know, 2025 to June 30th of 2020.

[C]

Because you launched your first product with June to June.

[B]

That's right.

[C]

Got it. Okay. All right. So from June 1962 to June 1963, the S&P fell 15.3%. So I would expect this to be down.3% because you breached the buffer zone. But it's actually showing, hypothetically, of course, that this would have been up 10.2%. Obviously I'm missing something. So what am I missing?

[B]

So the only thing that you're missing, Michael, is that in order to construct that exposure, that changes the dual direction down to a buffer. It's not a straight line down. It's actually we, we utilize options to make it. It's not progressive. I mean, it's, it. But it's not a straight line down. And so there's actually from minus 15 to minus 16. Really, it's when you're down minus 16, then you're down 1%. But in between minus 15 and minus 16, it's this gradual. It's not gradual. It's a pretty pronounced move from being up 15 to down 1 in that minus 15 to minus 16% level. So think about that. Minus 15, minus minus 16, that 1% gap, that's the transition from a dual direction down to a buffer.

[A]

Can you imagine how thrilling that would be to watch going from 15 to 16?

[C]

But wait, bet it's like you're betting.

[A]

On a horse race.

[C]

Do you get it? So why not call it the 16%? Because we want to be.

[B]

So we want to be very conservative with, you know, clients. We don't want people to think, oh, it's only when I'm down 16, then I'm the market's down 16, then I'm down 1. Where we want them to understand that really the dual direction benefit really stops at minus 15. That's what we want to make sure that they understand that. That's one of the reasons why I think advisors have trusted us is because the way that we communicate what the products do, we're always going to be as conservative and straightforward as possible with them. So there's no surprises. If there's going to be a surprise, we want it to be a pleasant surprise. And now we're talking about a -15 and -16. The likelihood of that happening is very small. But we are going to always give advisors the More conservative, you know, talking points. The more conservative approach, Giving a buffer.

[A]

See, it's funny because every year on my birthday, my dad says, So I turned 44 a couple weeks ago. And my dad says, okay, you turned 44, but technically you're entering your 45th year on this planet. He has to tell me that every year. So it's like that.

[C]

Wait, hold on. Not to nitpick, but this is very, very important because expectations, especially with products that are relatively complicated, are critically important. So I'm looking at down 15.3% and you're up 10%. But then I'm also looking at a year where you're down 15. Let's not use that. You're down fine, 15.8% and you're only up 2.2%. Or actually, here's a better example. I'm sorry, 1982. So 1982, the S&P is down 16.5% over that period. And now you're down 1.5%. So you could be down 15.3 and be up 10, but you could be down 16.5 and down down 1.5. That is a huge spread.

[B]

It is a huge spread. But if you think about it too, Michael, is that spread is already there. So if the market's down 15, you're up 15, and if the market's down 16, you're down 1 circuit out gap.

[C]

I think clients would still be happy. It's just, it's very different than being up 10. All right, not to belabor the point on this too much.

[A]

I like the fact that you included this data, the table. I think it is helpful to help people understand what the possible range of out. Because that's the whole point of these products in the first place is. Right. It kind of gives you a range of outcomes.

[B]

That's right.

[C]

And also the point is the outperformance in markets, right? Like the third column, You're. You're outperforming in all periods and negative markets. But this is also very, very important. I know you mentioned this earlier, but it bears repeating. If the market, heaven forbid, falls 40% in a straight line, you have no protection.

[B]

You have protection. You still have that 15% protection. You'd be down 25% in that, in that environment.

[C]

But I'm saying, like, let's just say that the market nose dives from. Let's just say that you have a new product coming to market on January, right? So December is the outcome period. If between January and August, the market falls 40%, you're not feeling the protection now you know that it's there in December, but in that eight month, holy cow, I'm in hell, period. This is not a, this is not tail risk. This is not long bonds. This is not gold. And I know you said that earlier, but it's very important. This is not catastrophic. This is not a catastrophic hedge.

[B]

It's not a catastrophic hedge. The one thing that I would highlight is we had defined outcome ETFs, buffer ETFs out during COVID in 2022 when there were these sudden drop offs. And what was interesting is in those sharp drop offs, you realize a bigger proportion of your buffer earlier in the outcome period. So we had some buffers. Where Even in an eight month time frame, are you going to realize all 15% of that downside buffer? No, but you might realize 13, 14, because again, the market's pricing the probability, what's the odds of the market if it's down 40 in eight months, it's got to go up 15, you know, 25% for a 15 buffer to, to stop adding, you know, value. That's, that's where you know, so, so I would say in those environments, and we've, we've lived them, you realize a bigger portion of the buffer in those severe markets. But Michael, it's a fair point. It's exactly what we said at the onset. This is not a tail risk. It is a solution that hedges, not hedges, makes money in most negative markets.

[A]

And I guess the difference between a tail risk strategy and this is that you still have some upside. And I think that's been most people's problems with a tail risk strategy is that when markets are going up, you essentially earn nothing in those. Right. And I think that's why people have had a hard time staying in them. So obviously when you're talking to advisors about this strategy, this is not a, this is, I would assume, not a stock market replacement. This is your more conservative allocation, fixed income. Maybe this, like you said, this is even something of a diversifier of fixed income. But obviously it helps diversify against stock market risk. But also fixed income, is that kind of where people are placing this in their more conservative allocations?

[B]

Yeah, Ben, I think we've had advisors allocate really within each of those buckets that you just mentioned, Some people look at it, you know, if you want a true diversifier to equities in these negative markets, how many strategies are out there that give you true inverse performance to the S&P 500 over a time frame there, there's none you know, even these tail risk strategies that they're more maybe tied to vix and they'll get this big pop and then that goes away pretty quickly and you don't really know. You can't. Are you going to hold it for a day or a week? You have no ide what you're going to get. And then over time, we know that market's positive what about 80% of the time over one year time frame, you need to have some positive performance. Advisors can't tell their clients, hey, we're not going to make any money in an up market, but, but we will make some money in a negative market that doesn't work. Maybe they need to be able to tell, hey look, we're going to make money in an up market. And let's contrast this to what's out there right now. I mean, in a survey we did with advisors, 92% say over the next year the S and P is not going to return more than 10%. That's more bearish than we've. We asked that question every single webcast we do. That's a more bearish sentiment than usual. I would say. Usually it's around 60 to 70% of the time, you know, advisors are saying 10% or less and you get some advisors that are saying, no, it's going to be more than 10%. So within that there are people saying the market's going to be negative.

[C]

That's how you know it's not going to be. I feel pretty good now. Thank you. I was looking for a wall of worry. I just found it.

[B]

But for those advisors that maybe their clients are more conservative and so it might fall in their equity bucket. Not all of it, just a portion of it, but that bond portion. There's a lot of worry. We want to talk about worry. Who knows what bonds are going to do. Everybody thought that bonds were just going to have this great run after 2022. They're just doing okay. They're tax inefficient. You don't know what you're going to get with them. This fits, you know, within that mold or even if you're just trying to hedge. This is a different way to hedge now where you can not just be protected in down markets. You can make money in down markets. I'm not aware of any other ETF 40 act fund that gives people this type of certainty in negative markets.

[C]

What happens at the end of the maturity period when these things reset, how does that work?

[B]

It's just like any of our other defined outcome ETFs. We use Flex options or exchange traded. There's no counterparty risk. You're not facing a Bear or Lehman or aig. At the end of the outcome period, the options simply mature and we rebalance into a new one year outcome period. Let's stick with the 15 dual direction. We have a 10 dual directional as well. Let's take with the 15. We're always going to solve to that 15% dual direction. What will change each year is the upside cap. And that's going to be driven by market volatility, interest rates, but that's going to be the only thing that changes year to year.

[A]

So you have a 10 one as well, you said so similar rules and outcomes, I suppose.

[C]

Is it's a 10 really 11 or is it 12?

[B]

It's, it's the same thing. It's at 10, you know, from a 10 to 11 that that's where the full transition, that 1% spread, that's where it fully transitions from being dual direction to a, a downside buffer. But as you guys would expect, having a 10 instead of a 15, you get more upside. So the upside on that is over 12%. So maybe that slots a little more into an equity type allocation. Again, we're not saying this replaces it, but it could be a portion. Some people might put it in their bond allocation. But the other thing that I think is important to highlight from Michael's question is at the end of these one year timeframes, this role that happens, it's tax deferred. And so I can't tell you the value add that. When advisors hear that because they do the notes, the annuities, those are all taxable when they come due. The bonds are using taxable. Unless you're holding in special accounts, the ability to say, hey, look, we're not going to pay any taxes on these products until we decide to sell. That is a huge value add that they can give to their clients.

[C]

That's interesting. All right, that's a differentiation. You also have another slide showing how what you're doing inside of this wrapper is obviously very different from annuities, structured products, where these items are, where these strategies are common. For people that are not familiar, let's assume that they are. But if they're not with the ETF wrapper versus the others, what's the benefit?

[B]

The benefit is if you are buying a structured note or an annuity, you're essentially buying a piece of paper from an insurance company or a bank that promises that they're going to Deliver what they say they're going to now, that's all great. And the probability of them not delivering is extremely low. Except it's happened and it's happened recently. If we just go back to 2008, 2009, there are advisors that held Bear Stearns, Lehman, AIG and eventually they, I think they got a good amount of their money back, but they took a long time. And from that, that is. Can you imagine buying protection for your clients? You had the right idea and then having to call them and say actually just lost everything because these companies went out of business. That's the beauty of the, the buffer ETFs, the defined outcome ETFs. The dual direction ETFs is we use options that are centrally clear. These are 100% guaranteed by the OCC, the options clearing Corporation for guaranteed settlement. There is no credit risk. You're not facing another group on the other side. You're not looking at innovator to guarantee the performance. And so the ETFs do exactly what they say they're going to need to. You're not taking on the credit risk. They're tax efficient. They're far more liquid too. We have conversations with advisors that like the dual direction payoffs, but when you're doing it in the insurance wrapper, you have to get client signatures. It's a pain. It's not 1099 reporting. You have the, you know, maturity for annuities, for notes. You have to, you get the cash, it's a taxable benefit.

[C]

You guys employ it too much.

[B]

Yeah, exactly.

[A]

So it's illiquidity, all that stuff.

[B]

We're just simple.

[A]

So now that you've built this whole suite of products, you did the buffer ETFs and the defined outcome bonds and the accelerated ETFs and the income and you had like the 100% buffer. And then now these dual direction. Are you getting to the point where you can do a model portfolio and say like this is kind of equivalent to a stock bond just with more defined outcomes? Are you there yet?

[B]

I think we are. In fact, we have a team internally that's been building that business out because as you can imagine, there are a lot of advisors that love doing it themselves. There are other advisors that say, hey, I love this concept. Do you have something that just kind of, that manages it for me? And so we have a team that has been building models for a number of years now. And that model business has actually really started to take off because again, advisors want an easy to implement solution. That's managed for them. And so we have a variety of models, various risk tolerances. If maybe you don't like bonds, maybe it's not even that you don't like bonds. You just say, my clients hate paying taxes, and if I do these buffer ETFs, that tax bill goes way down and I'm not paying ordinary income, so there's a lot of value add. Or maybe I just want to hedge some of my equity exposure. So lots of different models that are being utilized now by advisors.

[C]

All right, Graham, well done. For investors or advisors that want to learn more about your suite of strategies, you have some great materials. Where do we send them?

[B]

Send them to innovatoretfs.com and we have an entire team that's dedicated to defined outcome ETFs. So one thing I would leave you all with and the audience is that this is all we do. Again, we are the first to pioneer the defined outcome space. First buffers, first accelerated, first 100 buffer, first dual direction. And so all things defined outcome, let us be the experts on that side.

[C]

All right, appreciate the time.

[B]

Thanks, guys.

[A]

All right, thanks to Graham. Remember to check out innovator etc ETFs to learn more about the fuel direction ETFs and much more. Email us animalspiritsompoundnews.com.