How to Make the Most of Defined Outcome ETFs
Johan Grahn of Allianz Investment Management says defined outcome is not a stock substitute.
In this episode of Advisor Insider, we talk with Johan Grahn, head ETF market strategist at Allianz Investment Management, about one of the hottest areas of the ETF space, buffered strategies that offer downside protection in exchange for caps on performance.
We distinguish buffered ETFs with the fast-growing defined outcome ETFs that are coming to market offering 100% downside protection, meaning investors cannot lose their initial investment as long as they stay invested for the full term of the ETF.
Both buffered ETFs and defined outcome ETFs come with tradeoffs. For instance, investors are paying in the 60-basis point range for ETFs that are pegged to broad indexes that can be had for just a few basis points. Also, investors might be surprised to learn the cost of the insurance protection includes the loss of dividend income.
But, as Grahn explains, it’s important to look beyond the obvious with these ETFs and think of them as bond replacements that can even open doors to some tactical timing strategies.
