Defined outcome ETFs allow investors to participate in the market's upside to a cap while limiting losses if the market falls. Innovator Capital Management launched the first such ETFs in August 2018, but these strategies had earlier been available to investors in the form of structured notes and certain insurance products.

Since then, buffer ETFs have become one of the fastest-growing segments of the ETF market. They were very popular with investors last year and saw record inflows amid continued market turbulence.

These ETFs generally invest in a basket of FLEX options with varying strike prices. The strategy involves buying put options, which gives it the right to sell its exposure if the market goes down, and selling call options, which caps upside returns.

For example, the Innovator U.S. Equity Power Buffer ETF (PAPR) (PNOV - Free Report) is designed to track the return of the SPDR S&P 500 ETF Trust (SPY) , up to a predetermined cap, while protecting investors against the first 15% of losses over the outcome period.

The Innovator Growth-100 Power Buffer ETF (NAPR - Free Report)  seeks to track the performance of the Invesco QQQ Trust (QQQ - Free Report) , up to a predetermined cap, while buffering investors against the first 15% of losses over the outcome period.

To learn more about buffer ETFs, please watch the short video above.

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