Allianz Bundles Buffer ETFs into Fund of Funds

Allianz Investment Management is leveraging its $3.65 billion buffered ETF footprint in the U.S. to build out a suite of buffered products designed for longer-term investors.

The Minneapolis-based subsidiary of German insurance giant Allianz Group, whose 35 U.S.-issued ETFs are entirely buffered products, has rolled out two funds of funds that invest in buffered ETFs that mature on rolling schedules, according to a Jan. 8 statement. The structure effectively eliminates the defined outcome periods that come with traditional buffered ETFs.

The AllianzIM 6 Month Buffer10 Allocation ETF (SPBX) and the AllianzIM Buffer20 Allocation ETF (SPBW) are laddering underlying buffered ETFs that are staggered to reset on monthly intervals. SPBX, for example, owns six-month buffered ETFs that are staggered so one matures every month, while another six-month ETF is added. SPBW uses the same model with 12-month buffered ETFs.

Allianz Targets Advisors with Funds of Buffer ETFs

“This makes it easier for financial advisors to buy a diversified portfolio of buffered ETFs,” said Johan Grahn, head ETF market strategist at Allianz.

The six-month SPBX has a 10% buffer, which means investors are protected from any losses up to 10% but absorb all losses beyond 10%. The upside performance cap, which all buffer ETFs employ, is currently averaging around 6.7%, but that cap will vary as the underlying ETFs roll off and new ones are added under different market conditions.

In general, increased market volatility generates higher upside caps. SPBW, which owns 12-month buffer ETFs, protects losses up to 20% and is launching with an upside cap of just over 10%.

Both ETFs charge 79 basis points.

Traditional buffered ETFs have defined outcome periods, typically six-to-12 months, and investors must hold to maturity to get the full benefit of the downside protection. Grahn said the fund-of-funds structure enables advisors to effectively turn short-term investments into long-term investments.

“When you buy all six ETFs inside one fund you will always have one part of the fund maturing each month,” he said. “The fund of funds is in perpetuity, and the defined outcome is kind of irrelevant because you’re investing over a longer period of time.”

Investors are pouring billions into buffered ETFs in an effort to protect against losses. According to etf.com data, more than 200 buffer ETFs combine for nearly $46 billion, up from $35 billion a year ago and from $200 million in 2018.

“Part of the beauty of a fund of funds is you don’t have to worry about market timing and trying to buy when volatility pushes the cap higher,” Grahn said. “A diversified set of buffered ETFs is kind of like set it and forget it.”