It’s been a week of launches in the defined outcome space in the US, with four of the new products focused on buffers, caps or other methods of dealing with the threat of increased portfolio risk from choppy markets or the spectre of inflation.
One of those launches came from Allianz IM in the US, whose Johan Grahn was interviewed by us last week. “If you diversify out of fixed income, effectively what you are doing is stepping closer to the equity risk premium,” he said. “The beauty of the defined outcome ETF is that you get access to equity risk premium but cut off a big chunk of the downside risk.”
Grahn has noted that there are record levels of cash sitting on the ‘sidelines’ at the moment. “What is driving that is the fear of jumping in, with investors worried about buying equities, wondering when the music will stop.” Inflation, with a fear of the Fed raising rates, is looming on the horizon, Grahn says.
Nancy Davis, portfolio manager for The Quadratic Interest Rate Volatility and Inflation Hedge ETF (ticker: IVOL), which has USD3.25 billion in assets, has now launched a new product, the Quadratic Deflation ETF (BNDD), designed to help mitigate downside risk, while maintaining upside potential. “Some investors have expressed concerns that the US will experience an environment similar to Japan given the debt increase and labour market,” says Davis in an interview with ETF Express.
Her parallel with Japan is striking. She looks back to the late 1980s, when Japan was a global superpower. “The Nikkei topped out in 1989 and we are still below where we were then,” she says.
“We don’t want the US to go that way, but the Fed is hawkish, with more hikes in interest rates predicted but either of our funds are well set for all markets”.
Thematic investing is proving popular with the younger investor in the UK, and we have an interview with Wombat’s Kane Harrison on the firm’s expanding range of themes, all accessed through ETFs. For Harrison, investing in thematics is more about bringing in new investors. “It’s about new investors who haven’t invested before, who like a sector but don’t know which companies to go for,” he says.
We have news of our own this week, with the announcement last Friday that I have added proprietor to my managing editor title, with the takeover of ETF Express and Wealth Adviser.
Normal service will be maintained over the next month as we sort out the technology to take the two titles out of the Global Fund Media site, but then expect some small changes as we take the titles forward. Many thanks to the huge number of you who have responded so warmly to the news on social media. Keep in touch!
Beverly Chandler, managing editor
Companies in this issue
Quadratic Capital Management