Allianz debuts with S&P 500 ‘buffered outcome’ ETFs

Jun 2nd, 2020 | By | Category: Alternatives / Multi-Asset

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Allianz Investment Management has introduced its first ETFs with the launch of two funds providing defined-outcome exposure to US large-cap equities.

Brian Muench, President of Allianz Investment Management

Brian Muench, President of Allianz Investment Management.

Defined-outcome ETFs target a specific return profile with an allowance for a certain level of risk at a particular point in time.

The funds include the AllianzIM US Large Cap Buffer10 Apr ETF (AZAA US) and AllianzIM US Large Cap Buffer20 Apr ETF (AZBA US).

They have listed on NYSE Arca and come with expense ratios of 0.74%.

Each ETF is actively managed by Allianz in line with a systematic rules-based model.

Similar to existing defined outcome ETFs currently available on the market, the funds utilize FLexible EXchange (FLEX) Options – customizable exchange-traded option contracts guaranteed for settlement by the Options Clearing Corporation – to implement their strategies.

The ETFs track the S&P 500 Price Return Index while protecting, or buffering, against a pre-determined amount of potential losses over an outcome period of one year.

The downside protection comes at the expense of a cap on the potential upside of each ETF over the outcome period. The cap for each fund is set at the beginning of the outcome period and is dependent upon market conditions at that time.

AZAA buffers against the first 10% of losses and has an upside cap of 10.60%, while AZBA protects against the first 20% of losses and is capped at 5.41%. The one-year outcome period for the two ETFs will reset on 1 April 2021.

Brian Muench, President of Allianz Investment Management, commented, “Our ETF offerings seek to provide a clearer path of return expectations by providing a level of downside protection over a defined time period. The ability to remain invested in broad-based equities while reducing downside risk in an ETF vehicle is creating strong interest from financial professionals.”

The ETFs complement the suite of annuity and life insurance products offered by Allianz Life Insurance Company of North America, the parent company of Allianz Investment Management. Defined outcome strategies play to Allianz’s risk management experience and in-house hedging capabilities with the firm managing over $145 billion in hedged assets and serving as a bridge between insurance and capital markets.

“Allianz Life and Allianz Investment Management have a long track record of risk management experience that is core to our businesses,” added Muench. “Allianz Investment Management is uniquely equipped to manage outcome-based ETFs and help investors address their risk management needs.”

The Allianz defined outcome ETFs are slightly cheaper than comparable products offered by Innovator Capital Management and First Trust which come with expense ratios of 0.79% and 0.85% respectively. Each fund generally differs slightly in terms of downside protection, corresponding upside cap level, and maturity date of the outcome period, allowing investors to choose the ETF that best suits their individual risk profile.

Innovator offers ‘Buffer’ and ‘Power Buffer’ funds that protect against the first 9% and 15% of losses, respectively, while its ‘Ultra Buffer’ fund protects against 30% of losses, between -5% and -35%.

Meanwhile, First Trust’s ‘Buffer’ ETF shields investors from the first 10% of losses, while its ‘Deep Buffer’ ETF shields investors against 25% of losses, between -5% to -30%.

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