Outcome ETFs help investors achieve specific goals like enhancing income or adding downside protection. While buffered ETFs earned the nickname “boomer candy” for their soaring popularity among retirees, newly launched “accelerated” ETFs offer an opportunity for those on the other end of the spectrum.
In this article, we’ll take a closer look at accelerated ETFs, how they differ from leveraged ETFs, and whether you should consider them for your portfolio.
What Is an Accelerated ETF?
Accelerated ETFs combine an underlying index with options to amplify returns. But unlike leveraged ETFs, they offer 2X upside potential with 1X downside risk. The catch is that these accelerated returns only apply until a certain point, after which any future upside potential is capped.
Here’s how it works:
- A fund purchases the underlying index for baseline 1X exposure.
- They also purchase a long call option for an additional 1X exposure.
- Finally, they sell two call options at a higher strike price.
The income from writing two call options offsets the cost of the long call option, but they also limit any upside potential to their strike price. Like a covered call, you’re sacrificing upside potential for another benefit. In this case, it’s leveraging your upside rather than generating premium income.
Source: BlackRock
BlackRock’s iShares Large Cap Accelerated ETF (TWOX) applies this strategy to the iShares Core S&P 500 ETF (IVV). Between January 16 and March 31, 2025, the fund doubles your returns up to 5.82% for the period. For instance, if IVV rises 2%, TWOX would rise 4%. But, the maximum return is 5.82%.
While BlackRock is the newest to launch an accelerated ETF, Innovator Capital Management pioneered the concept with two quarterly outcome period funds, the Innovator Growth Accelerated ETF (XDQQ) targeting the QQQ and the U.S. Equity Accelerated ETF (XDSQ) targeting the (SPY).
Why the Strategy Makes Sense
Accelerated ETFs may sound perfect for bull markets. But in reality, they perform best during periods of modest price increases. And 2024 notwithstanding, these periods are very common for indexes like the S&P 500, which returned 0% to 8% in nearly half quarters between 2010 and 2024.
Source: BlackRock
In addition to working well in most markets, the TWOX offers these accelerated returns over a quarterly outcome period rather than leveraging daily returns like most leveraged ETFs. This makes it much more suitable for long-term holdings in a portfolio.
Important Caveats to Consider
Investors familiar with covered calls or the problems with trying to time the market will know the most significant caveat to this strategy: opportunity cost. While the S&P 500’s quarterly returns only exceed 8% a quarter of the time, those spectacular returns play a big role in your overall portfolio growth.
For example, missing just the ten best market days for the S&P 500 index between 2003 and 2023 would have cut your returns in half. While you may not miss the entire move with accelerated ETFs, the capped returns mean you could miss out on much of the upside potential.
The other caveat is that options-focused ETFs tend to be more expensive than passive funds. In the case of TWOX, the fund has a 0.5% net expense ratio, which is significantly higher than the 0.03% charged by IVV. These expenses can cut further into your returns, especially looking over the course of decades.
The Bottom Line
Accelerated ETFs offer a unique spin on conventional outcome strategies like buffered ETFs or covered call ETFs. While they could help you beat the market in most environments, the limited upside potential during large market swings could hurt aggregate performance over the long term.
That said, it remains to be seen if the higher returns during most market conditions will outweigh the opportunity cost and higher expenses. As a result, investors may want to keep an eye on this new outcome strategy.
