The podcast episode of "Behind the Ticker," hosted by Brad Roth, features Johan Grahn from Allianz discussing the intriguing world of buffered ETF products. Johan Grahn, with his extensive background in investment and asset management over two decades, delves into how buffered ETFs provide investors with defined outcomes, integrating protection against market downturns with a cap on maximum gains. These innovative products, primarily based on the S&P 500, aim to manage investment risk while ensuring transparency and building investor confidence.Grahn's journey through university endowments, consulting, and roles in large insurance companies has honed his expertise in risk-managed strategies and portfolio construction. This experience underpins his current role at Allianz, where he oversees the launch of buffered ETFs, a testament to his commitment to developing products that balance risk and return efficiently.The conversation explores the mechanics of buffered ETFs, including their reliance on an options package to achieve predefined outcomes. With different levels of protection (buffers) and durations available, these ETFs cater to a broad spectrum of investor needs. Grahn explains the reset process at the end of each outcome period, which allows for continuous protection and potential growth.Buffered ETFs emerge as a flexible investment solution amidst a noticeable shift towards more conservative strategies among retiring individuals. The podcast highlights how these ETFs can serve a wide range of investors, from those seeking to reduce equity risk in their portfolios to those looking to add risk in a controlled manner.Listeners interested in Allianz's buffered ETFs can find more information on their website, which offers comprehensive resources, including videos and product tables.
Deeper Dive: Insights from the Full Conversation
Beyond the headline strategy, the full conversation between Brad and Johan Grahn covered several additional themes worth highlighting for advisors and investors.
On Process and Philosophy
Those have learned a lot about how to, like, squeeze the most amount of return that you can out of the least amount of risk that you take, right? And I'm only mentioning all of this because it's going to lead into where we're at today in the position that I have working with ETFs for Aliens investment management. We launched a series of buffered ETFs or defined alchemy ETFs. And it's a very clean way to get exposure to a risk managed product in a very transparent way that can help you build confidence into what you do on the investment side.
That's your risk, no matter what the other half of the portfolio is. So right now, if you think equities and fixed income, okay, fixed income, it may or may not give you that buffer that you're looking for from it. But you don't need it unless the equity markets are going down. There's no real, strong reason to own a sliver of income stream if you can't rely on the diversification benefits from that, sleep to fixed income. So if you're looking for diversification, you have an opportunity to build in a buffer ETF.
Market Context and Positioning
So when you don't need that free lunch correlation that everybody's been reading about and the MPT stats and the Monte Carlo simulations and every textbook about finance and investing, you don't really need the correlation benefits unless the markets are working against you. Mostly they don't work against you. Mostly they work for you. In a buffer ETF, you have positive correlation when that is the case. And then as markets start coming down, equity markets start coming down, you are decreasing the correlation in the buffer allocation closer and closer to zero.
So can you tell us a little bit about your background and how you ended up in the position you are today? Sure, yeah, it's a longer backdrop perhaps, but I've been in the investment asset management side of the business for a good 20 years. So a lot of what I've been doing has to do with portfolio and management and asset allocation and mixing and matching and building different types of risk profiles. And I've been doing that in different capacities, started out after college working for a university endowment fund.
But let's say that you can if the market goes up another ten percent. Let's say you get to keep that too. You know, the following year. But the neat thing, too, is that the buffer underneath of your investment is also going up. That's the account value is going up. So if I'm an RIA and I've got a regular client list and I'm building model portfolios. How are you using these ETFs?
Notable Insights
"The beauty for the investor, one of the really cool things is that we buy it on day one, but you ask an investor, you can buy it on day two, three, 16 or 48, whatever day whatever day that looks attractive to you because it's daily trading."
"And you also kind of went into like the difference between a buffer and a floor."
Key Takeaways
- The conversation explores important themes in fixed income relevant to today's advisor landscape.
- The conversation explores important themes in portfolio construction relevant to today's advisor landscape.
- The conversation explores important themes in alternatives relevant to today's advisor landscape.
What This Means for Advisors
For financial advisors evaluating options for client portfolios, this conversation with Johan Grahn highlights important considerations around fixed income. Understanding the strategy behind each fund—not just the ticker—helps advisors make more informed allocation decisions and better communicate the rationale to clients.
The themes of fixed income and portfolio construction discussed in this episode are particularly relevant in the current market environment, where advisors are increasingly looking for differentiated solutions that go beyond traditional benchmarks.
Listen to the Full Episode
This article is based on an episode of Behind the Ticker, hosted by Brad Roth, Founder and CIO of THOR Financial Technologies. For the full conversation with Johan Grahn, including additional nuances and details, listen on Spotify, Apple Podcasts, or watch on YouTube.