Investors who want some padding in case of a hard landing have two new buffered funds to consider.
Allianz Investment Management launched two buffered exchange-traded funds (ETFs) on the New York Stock Exchange, Arca, on August 31. The AllianzIM U.S. Large Cap Buffer10 Sep ETF (SEPT) and the AllianzIM U.S. Large Cap Buffer20 Sep ETF (SEPW) target the broad market through the flagship SPDR S&P 500 ETF Trust (SPY).
SEPT seeks to shield buyers from the first 10% of market declines, while SEPW gives heavier-duty armor – aiming to protect against 20% of losses. They allow investors to participate in the upside potential growth of the S&P 500 up to a stated cap. SEPT’s gross cap is 19.44%, while SEPW’s is 13.54%. The buffered ETFs are offered with six and 12-month outcome periods.
Buffered ETFs are akin to protective gear, sheltering traders from a knock-out below if equities falls through the floor.
There are bullish signs in the market. Fresh economic data on the US labor market – such as unemployment rising to an 18-month high of 3.8% and slowing gains in wage growth – suggests the Federal Reserve’s campaign against inflation has borne fruit and that its historic rate-hiking cycle may be near an end. Were this to occur without major disruption, the US economy may attain the elusive “soft landing” and avoid the long-expected recession.
According to the Cboe Volatility Index VIX index, market volatility is near year-to-date lows (around 13 points). After a pullback last month, calm has descended over markets as summer turns to fall.
A mountain of cash waits on the sidelines. Around 3.5 trillion is in US institutional money market accounts, a sum that has grown this year even as the bull run gathered pace, suggesting traders remain cautious about getting off the benches. For those who want to hedge their bets on equities beyond bonds, these September Buffered ETFs could be a favorable play.
“Risk management is the core of what we do at AllianzIM,” said Brian Muench, president of AllianzIM. “With just a few months left in 2023, we stand committed to helping investors more confidently plan for the future. Our growing suite of Buffered ETFs are designed to help investors put their money to work, while hedging against the evolving risks in the market.”
Defense strategies are in vogue, including income-based active ETFs, like the recently launched ZEGA Financials’ YieldMax suite. So hot has been the demand for this category of fund that leaders like JPMorgan Equity Premium Income ETF (JEPI) have now ballooned to become the largest active investing product.
The SPDR is up around 18% year-to-date, currently trading at around $450.
Both Allianz funds have an expense ratio of 74 basis points.