The Rise of Next-Gen Synthetic ETFs:How Derivatives Are Powering a NewWave of ETFs

As market volatility and large-cap concentration risks continue to rise, we were interviewed by Risk.net to discuss the latest trends and dynamics in synthetic ETFs, derivatives based.

Investors are increasingly turning to ETFs that integrate derivatives for enhanced risk management, income generation, and tactical asset allocation.

Defined outcome ETFs, covered call strategies, and derivatives-based income ETFs—once niche products—are now at the forefront of ETF innovation, offering cost-effective ways to hedge downside risk while maintaining market exposure.

Regulatory shifts, such as the SEC’s expanded allowance for derivatives usage in ETFs, have accelerated the growth of market, since 2020. Investors in the U.S. primarily rely on flex options and equity linked derivatives, while European markets lean toward over-the- counter swaps. Yet both regions are seeing a surge in derivatives-based ETF solutions due to their efficiency, liquidity, and cost advantages.

Despite rapid adoption, many investors and asset managers are still underutilizing derivatives-based ETFs due to lack of access to solutions for derivatives structuring and valuation. Our comprehensive derivatives data, valuations, and ETF management solutions empower issuers, asset managers, and institutional investors to confidently navigate this evolving landscape.