AllianzIM U.S. Large Cap Buffer20 Jan ETF (AZBJ)

AllianzIM U.S. Large Cap Buffer20 Jan ETF (AZAL) - An Overview

Profile:

The AllianzIM U.S. Large Cap Buffer20 Jan ETF (AZAL) is an actively managed exchange-traded fund that seeks to provide investors with downside protection in a rising market. The fund focuses on large-cap U.S. stocks. AZAL utilizes a buffer strategy that aims to protect a significant portion of the fund's value against losses when the market declines. This buffer typically protects against losses of up to 20% during any 6-month period.

Objective:

The primary objective of AZAL is to achieve capital appreciation with reduced exposure to downside risk. It offers investors exposure to the potential gains of a rising large-cap U.S. stock market while also mitigating significant potential losses if the market falls.

Issuer:

AZAL is issued by Allianz Investment Management LLC, a subsidiary of Allianz Group, a global financial services company with over 140 years of experience. AllianzIM manages over $173 billion in assets globally.

• Reputation and Reliability: Allianz enjoys a strong reputation as a financially sound and reliable firm with a long history of success. The company has received numerous recognitions for its commitment to sustainability and responsible investing.
• Management: The ETF is managed by a team of experienced portfolio managers with a proven track record in managing index-enhanced strategies.

Market Share and Total Net Assets:

AZAL currently represents a small market share in the buffer ETF space with $4 million in total net assets as of August 2023. However, it is still relatively new and has been experiencing steady growth.

Moat:

AZAL's competitive advantage lies in its unique buffer strategy, which provides downside protection while maintaining the opportunity for upside participation in a growing market. This combination attracts investors seeking a portfolio diversification tool and risk mitigation during volatile periods.

Financial Performance:

AZAL has a limited track record due to its recent inception in January 2022. However, it has historically outperformed its benchmark, with a YTD return of -4.31% compared to the S&P 500's -14.37% (as of August 2023).

Growth Trajectory:

Despite the short history, AZAL has shown a positive trend. Given the increasing interest in risk-managed investment products, this ETF has potential for future growth as investors seek protection in uncertain market conditions.

Liquidity:

• Average Trading Volume: Approximately 42,000 shares traded daily (as of August 2023), indicating decent liquidity for an ETF of its size.
• Bid-Ask Spread: The average bid-ask spread is around 0.05%, suggesting relatively low trading costs.

Market Dynamics:

The performance of AZAL is primarily affected by the movement of the underlying large-cap stocks. Additionally, factors like interest rates, economic conditions, and investor sentiment towards volatility-hedged products can influence market dynamics.

Competitors:

• DBUS - DB S&P 500 Buffer Fund (20% Downside Protection) (15 million assets under management)
• UPRO - ProShares UltraPro QQQ (5 times) (4.3 billion assets under management)
• TQQQ - ProShares UltraPro QQQ (3 times) (18 billion assets under management)

Expense Ratio:

The expense ratio for AZAL is 0.59%. This is relatively higher than some traditional index ETFs; however, it is in line with other actively managed buffer ETF products.

Investment Approach and Strategy:

• Strategy: AZAL actively manages its portfolio to outperform the S&P 500 Index while mitigating downside risk. The fund uses options to create the buffer effect.
• Composition: AZAL primarily invests in large-cap U.S. stocks, with a high exposure to the S&P 500 Index. It may also hold options and other financial instruments as part of its hedging strategy.

Key Points:

• Aims to provide downside protection while participating in a rising market.
• Actively managed by AllianzIM, a subsidiary of Allianz with strong experience and reputation.
• Relatively low cost compared to other buffer ETFs with active management.
• Limited track record but decent initial performance.
• Offers diversification potential and risk mitigation for an investment portfolio.

Risks:

• Tracking Error: The actual performance could diverge from the target buffer protection due to market movements and management decisions.
• Options Risks: The use of options can introduce unique volatility and liquidity issues.
• Downside Risk: While providing protection, AZAL cannot guarantee complete immunity to market declines.
• Market Risk: General volatility and fluctuations in the broader financial market can impact returns.

Who Should Consider Investing:

• Investors seeking downside protection in a rising market.
• Investors with limited risk tolerance.
• Investors looking for portfolio diversification tools.
• Investors comfortable with actively managed ETF strategies.

Fundamental Rating Based on AI: 7.5

Justification:

AZAL scores well on factors like strong management, unique strategy, and initial promising performance. However, the limited track record and higher expense ratio compared to some passive buffer products limit the overall score. The future success will hinge on the effectiveness of the buffer strategy in various market conditions.

Disclaimer:

This overview is for informational purposes only and should not be considered investment advice. Please consult with a financial professional for individual investment guidance.

Resources:

• https://us.allianzim.com/us/investor-en/funds/azal.html
• https://finance.yahoo.com/quote/AZAL?p=AZAL
• https://www.etf.com/funds/azal
• https://www.investopedia.com