Buffered ETFs Grow as Investors Shun Risk
As investors seek low-risk investments amid a climate of market volatility, they’re increasingly turning to a financial instrument that debuted just a few years ago: buffered exchange-traded funds.
Buffered ETFs, also called “defined outcome funds,” aim to shelter investors’ assets from some stock market losses in exchange for a cap on potential gains. Allianz IM, the giant Munich-based financial services firm with $2.63 trillion in assets under management, announced last week it’s expanding its U.S. buffered ETFs.
Buffered ETFs have surged since 2018, when Innovator Capital Management launched its first defined outcome fund, and was quickly followed by First Trust Portfolios, Allianz Investment Management, Pacer ETFs and TrueMark. More than 150 ETFs are traded on U.S. markets, with total assets under management of $18.5 billion, according to ETF.com data. Most are linked to the S&P 500 Index.
This year, falling stock and bond markets, rising inflation and interest rates have pushed investors to seek safe investments. “Sitting on the sidelines hasn’t been a good option with the eroding value of cash due to inflation,” Johan Grahn, head of ETFs at Allianz’s Minneapolis-based Investment Management arm, wrote in an email to ETF.com.
“In a market like this, [buffered] products offer equity exposure with some defined parameters that can help investors stay invested in the market while adding an element of risk management,” he said. “In 2022, investors’ options have been limited, with both equities and bonds posting negative returns.”
AllianzIM, which manages $18.8 billion, has introduced a number of defined outcome ETFs over the past four years, including a pair this month: the AllianzIM U.S. Large Cap Buffer10 Nov ETF (NVBT) and the AllianzIM U.S. Large Cap Buffer20 Nov ETF (NVBW). The ETFs provide a buffer of 10% and 20% of market losses with a cap of 26.75% and 16.90% on gains, respectively.
The newly launched ETFs from AllianzIM—which now has 12 ETFs on U.S. markets—have portfolios with low asset counts and seed money invested from AllianzIM itself, despite entering a competitive market alongside other defined outcome products.
Allianz’s November series enters the same arena as the Innovator S&P 500 Buffer ETF - November (BNOV) and the Innovator U.S. Equity Power Buffer ETF - November (PNOV).
Despite market fluctuations, Innovator has posted strong gains from its buffered ETF products, with the firm’s 80 defined outcome ETFs taking in $348 million in the first week of October alone.
Contact Zoya Mirza at zoya.mirza@etf.com
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