Equity

Outcome ETFs for accelerating growth potential

Jan 21, 2025|ByRobert Hum, CAIA

KEY TAKEAWAYS:

  • Outcome ETFs can be used to enhance return potential in moderate growth cycles.
  • The iShares Large Cap Accelerated ETF provides investors access to an accelerated return strategy in the convenience of the ETF wrapper.
  • Markets have experienced moderate quarterly returns nearly half of the time1 making accelerated ETFs a potentially powerful tool for investors.

iShares Funds

Explore a range of iShares ETFs to meet your clients’ investing goals.

1 WHAT ARE OUTCOME ETFs?

iShares Outcome ETFs are innovative, options-based strategies designed to help investors potentially achieve specific investing goals like enhanced income, growth, and targeted protection. Accelerated ETFs are a type of outcome strategy focused on growth by combining an underlying index or fund with options to create an acceleration zone.2 The acceleration zone enables investors to potentially experience accelerated returns up to a certain point over a specific outcome period, typically a full calendar quarter or year.

2 OPTIONS FOR ACCELERATED GROWTH

Options have been used for decades by wealth managers as a hedging vehicle and way to generate income for clients. But they can also be used to enhance return potential in moderate growth cycles. While these accelerated growth strategies have typically been used within structured products, it is now possible for investors to access these strategies in an ETF, the wrapper of choice for many investors and advisors.

3 INTRODUCING ACCELERATED ETFs

TWOX, the iShares Large Cap Accelerated ETF, is BlackRock’s first option-based ETF focused on growth potential by seeking accelerated returns. The fund seeks to provide approximately twice the positive share price return of the underlying ETF, iShares Core S&P 500 ETF (IVV), up to an approximate cap, while seeking to track the negative share price return of IVV, over each full calendar quarter.

Fund construction breaking down how options and IVV contribute to 2x upside, 1x downside, and the cap.

TWOX can serve as a potential solution for enhancing US large cap returns in a moderate growth environment, conveniently offered in a liquid and low-cost ETF.

The purpose of the chart below is to hypothetically illustrate how the fund may be impacted by the acceleration zone and approximate cap if held over the full outcome period.

Chart showing scenarios of IVV price return compared to TWOX

For investors that purchase or sell the ETF within the outcome period, the potential performance may be different compared to purchasing the fund on day 1. Hypothetical scenarios is showing price changes in the Underlying ETF and assumes returns if held over the entire outcome period. The hypothetical returns shown do not include management fees or potential dividends. The Approximate cap shown is net of management fees. Hypothetical performance does not guarantee future results. For illustrative purposes only. There is no guarantee of any specific positive outcome. 


It is important to note that acceleration can go both ways over the course of the outcome period. Investors buying the fund within the outcome period may, in certain circumstances, experience accelerated losses. To see where the fund is at in relation to its acceleration zone, access our interactive chart here.

4 HOW OFTEN HAS THE MARKET EXPERIENCED MODERATE GROWTH?

Modest quarterly market returns happened more often than you might think. While the past does not guarantee what happens in the future, the S&P 500 quarterly price returns have been between 0 and 8% nearly half of the time.Accelerated ETFs may help improve returns in these types of scenarios by providing up to 2x the positive share price return of the Underlying ETF up to the approximate cap.

Data on how often quarterly S&P 500 price returns are down, up less than 8%, ore more than 8%.

5 IS THIS A LEVERAGED FUND?

If you have clients that actively invest on their own, they may be familiar with leveraged ETFs. Leveraged ETFs typically provide leveraged daily returns rather than an outcome period and do so without any caps, meaning investors always have leveraged upside and downside. They are also generally held by investors for short periods of time, often intra-day. The iShares Large Cap Accelerated ETF is fundamentally different, offering accelerated return potential within a pre-determined range of price returns over a quarterly outcome period rather than daily. This seeks to make it easier to use Outcome ETFs as long-term holdings in portfolios.

6 PUTTING OUTCOME INVESTING INTO ACTION

We continue to be committed to outcome strategies and to offer choice, whether investors are looking for targeted protection, income, or growth. TWOX can help investors experience enhanced return potential during periods of moderate growth. Investors looking for targeted downside protection may consider iShares Buffer ETFs, and for those looking for income may consider the iShares Buywrite ETFs.

iShares Funds

Explore a range of iShares ETFs to meet your clients’ investing goals.

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Robert Hum

Robert Hum, CAIA

US Head of Factor and Outcome ETFs


Igor Zamkovsky

Jacob Goldberg CFP

Kyle Axelrod

Sydney Grissom

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