Allianz Launches Two ETFs in Hotly Contested Market Niche

(Bloomberg) -- Allianz Investment Management is stepping into a growing corner of the $4 trillion ETF market with two funds that protect against stock losses.

The AllianzIM U.S. Large Cap Buffer10 Apr ETF, or AZAA, and the AllianzIM U.S. Large Cap Buffer20 Apr ETF, or AZBA, begin trading Monday. The exchange-traded funds will seek to track S&P 500 Price Return Index up to a stated cap on gains, while shielding investors against the first 10% and then 20% of losses should the gauge drop. So-called buffer funds -- a space dominated by niche issuer Innovator ETFs -- have attracted over $2 billion worth of inflows so far in 2020.

While parent Allianz SE -- which owns Pacific Investment Management Co. -- is no stranger to the ETF universe, it's the first venture into the space for its insurance-focused subsidiary. The company offers similarly structured variable annuities, which also have a set of defined outcomes. However, the ETF will reach a broader swath of risk-conscious individual investors than just through the annuity products alone, according to Allianz's Corey Walther.

“Investor appetite for risk seems to be decreasing across generations as baby boomers prepare for retirement and millennials report heightened sensitivity to loss,” said Walther, president of Allianz Life Financial Services.

Both Allianz ETFs will have expense ratios of 74 basis points.

Buffer ETFs have picked up popularity in 2020 as the coronavirus sent stocks plunging into the fastest bear market ever, before they rocketed out at a record clip. The defined-outcome ETF landscape was pioneered by Innovator, whose 46 buffer funds have attracted roughly $2.9 billion in assets since the first were launched in 2018. Innovator has filed patent applications for the processes and methodologies behind the products and trademark applications for the names “Buffer ETF” and “Defined Outcome.”

But competition is building. In addition to Allianz, issuer First Trust has its own buffer ETFs. New York Life Investments's IndexIQ unit has also filed plans for defined-outcome ETFs, after debuting several such unit investment trusts.

“We are not surprised to see some of the largest providers of annuities noticing advisors' preference for buffer strategies in the ETF vehicle rather than the annuity wrapper and deciding to copy the processes behind our patent-pending Defined Outcome ETFs,” said Bruce Bond, chief executive officer of Innovator. “This further validates Innovator's Defined Outcome ETFs and illustrates the significant threat that they pose to the multi-trillion dollar insurance industry.”

The uptick in issuance should help boost awareness of buffer ETFs and ultimately benefit Innovator, according to Old Mission Holdings.

“Innovator came out with the first and really turned some heads,” said Harry Whitton, head of ETF sales and trading at the market-maker firm. “When you get these big marketing groups behind them, like Innovator is building, you'll see more and more people talking about them.”

For Allianz's Walther, Monday's launch is the first of several from the insurance company.

“We started with an ETF that was simplistic, easy to understand, familiar with clients,” Walther said. “Our intent is to continue monitor that and test new areas that might be opportunities or additional gaps where we could continue to expand.”