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Should You Limit Losses with Buffered ETFs?

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  • (1:30) - What Should Investors Think About The Recent Market Action?
  • (7:00) - What Is The Biggest Risk To The Stock Market Right Now?
  • (13:30) - What Is A Defined Income ETF?
  • (17:20) - Allianz’s Suite of Buffered Outcome ETFs
  • (27:10) - How Do These ETF’s Fit Into An Investors Portfolio?
  •                 Podcast@Zacks.com

 

In this episode of ETF Spotlight, I speak with Johan Grahn, Vice President at Allianz Investment Management, about defined outcome ETFs that allow investors to participate in the market upside to a cap while limiting losses if the market falls.

Innovator Capital Management had launched the first defined outcome ETFs in August 2018. Since then, a number of providers have launched these products. With continued gyrations in the market over the past few months, these products have seen a surge in interest from investors. More than 100 defined outcome ETFs are now available to investors, with over $7 billion in assets.

Stocks have been on a roller coaster ride thanks mainly to inflation fears. It remains to be seen whether inflation is driven by temporary factors related to the pandemic or we are witnessing a historic shift after decades of low inflation.

Per AllianzIM, many investors are willing to give up some potential gains for a vehicle that protects their investments from losses. The company, which has been managing defined outcome strategies in an insurance wrapper for decades, launched a suite of buffered ETFs last year.

AllianzIM Buffered Outcome ETFs are designed to provide exposure to the S&P 500 (SPY - Free Report) ’s return, while aiming to buffer investors from losses on the downside. They currently offer two strategies on the S&P 500 Index: a 10% buffer and 20% buffer. These ETFs use flex options to achieve their outcomes.

For example, the AllianzIM U.S. Large Cap Buffer10 Jan ETF seeks to match the returns of the S&P 500 Index up to a stated upside cap, while providing a buffer against the first 10% of the losses for the currently effective outcome period from January 1, 2021 to December 31, 2021. The Buffer20 Jan ETF provides a buffer against the first 20% of the S&P 500 Index losses

We also discuss how investors can use these products in their portfolios. Tune in to the podcast to learn more.

Make sure to be on the lookout for the next edition of ETF Spotlight! If you have any comments or questions, please email podcast@zacks.com.

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