Allianz Investment Management LLC (AllianzIM), the subsidiary of Allianz Life, has stepped into the ETF world with its launch of a new ETF product line based on buffered outcome products, comprising the AllianzIM US Large Cap Buffer10 Apr ETF (NYSE Arca: AZAA) and the AllianzIM US Large Cap Buffer20 Apr ETF (NYSE Arca: AZBA).
Allianz is one of the largest financial services firms in the world, and AllianzIM manages over USD145 billion in hedged assets.
The new ETFs, with a price of 74 basis points, are designed to match the returns of the S&P 500 Price Return Index up to a stated Cap, while providing downside protection (through the Buffer) against the first 10 per cent and 20 per cent of S&P 500 Price Return Index losses for AZAA and AZBA, respectively.
Corey Walther, President, Allianz Life Financial Services, explains that there were three main drivers behind the launch of these products, the first ETFs from the investment management subsidiary of Allianz Life.
“We felt that risk management is part of our DNA on the insurance side,” Walther says. “We have a long track record and USD145 billion of hedged assets across the globe so we could bring our in-house hedging capabilities to the investor.”
The three drivers were an observation that the investor’s appetite for risk was decreasing; that the prevailing market dynamics had created new challenges over the past few months of unprecedented volatility and persistently low interest rates; and finally, that risk management is not a one-size-fits-all solution.
“There are so many good products out there, such as annuities and structured notes, that address investor needs,” Walther says. “We saw this as a unique way to bring institutional risk management to investors, when other solutions may not fit.”
Walther believes that these solutions in the form of an ETF are versatile and might appeal to investors at one end of the spectrum, such as a younger investor in their late 20s to early 30s who may be outside the more obvious demographic, but wants to get invested into the stock market with a level of protection.
“There is upwards of USD21 trillion in cash on the sidelines in the US that has no upside potential for gain and needs to be invested for the long run with a level of downside protection,” Walther says.
“The other demographic is people in their fifties and sixties, the baby boomers, approaching retirement who worry about a black swan event which might wipe out what could be 20-30 per cent of their entire nest egg. These products would be used to allow an investor to remain invested for the long run but continue to do it with a level of protection.”
Walther explains that these ETFs are designed to be fairly simple, linked to the S&P 500 with buffered levels of 10 or 20 per cent, offering a unique value proposition and benefit as compared to an annuity.
“The analogy I have used is ‘the Coca-Cola analogy’,” Walther says, explaining that as a franchise, the consumer can consume the drink in a variety of ways, but it’s still the same drink.
“For us in the risk management business this is just another way for individual investors to access that type of expertise.”
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