Johan Grahn

Johan Grahn has spent about 20 years in investment management and asset allocation, starting at a university endowment where he oversaw a complete overhaul of a $250 million portfolio spanning equities, fixed income, hedge funds, real estate, and timber. He later worked as an investment consultant for other endowments and pension plans, then built risk management strategies for a large insurance company based in New York, working with firms on volatility-driven management, risk parity, momentum, and rate overlays. That entire career arc led him to his current role at Allianz Investment Management, where he runs their suite of buffered ETFs.

On this episode, recorded live at the Exchange ETF conference, Johan breaks down how Allianz's buffered ETFs work, the difference between a buffer and a floor, and why an aging population with decreasing risk appetite is driving explosive growth in the defined outcome category.

Buffers, Floors, and How They Work

Allianz offers four distinct defined outcome products. The first two are 12-month and 6-month versions with a 10% buffer, meaning the first 10% of downside is absorbed. The third is a 12-month product with a 20% buffer for deeper protection but a lower cap. The fourth, and newest, is a floor product over six months where the maximum loss is 5% regardless of how far the market falls. All four products reset at the end of their outcome period, giving investors a fresh buffer and new cap at the higher starting price.

Johan walks through the mechanics clearly. Take a 10% buffer with a 20% upside cap over 12 months: if the market drops 10% or less, you keep your entire million dollars. If it drops 11%, you lose 1%. If the market is up 20%, you keep all 20%. If it's up 30%, you cap at 20%. The trade-off is straightforward: you're giving up gains beyond the cap in exchange for downside protection. Deeper buffers mean lower caps.

Under the hood, these are options packages using FLEX options (specifically delta-adjusted FLEX options), which are custom exchange-traded contracts that provide the specificity needed for the outcome structure. The buffer is created by buying an at-the-money put and selling a put out-of-the-money at the buffer level. The cap is created by selling a call option at the cap level. These options are set at inception and held through the outcome period. No active trading is needed during the term, which is part of the product's simplicity.

Daily Liquidity vs. Structured Notes

One of the biggest advantages over structured notes and annuities, Johan emphasizes, is daily liquidity. If you buy a structured note on day one and want out on day 63, you're typically stuck until maturity. With Allianz's ETFs, you can buy or sell any day the market is open. An investor who enters mid-period gets a proportionally adjusted buffer and cap based on the ETF's current price relative to its starting value. This makes the product dramatically more flexible than insurance-based alternatives.

Johan also addresses the pricing question that comes up when buying mid-period. If the ETF started at $100 with a 10% buffer (floor at $90) and a 20% cap ($120), and by day 50 the S&P has risen 5% so the ETF trades at $105, the buffer and cap don't change in dollar terms. Your buffer is still at $90 and your cap at $120. Your risk-reward from a $105 entry point is different from a $100 entry, and Allianz publishes daily metrics so advisors can see exactly what the remaining upside and downside look like at any entry point.

The Demographic Tailwind

Johan connects the growth of defined outcome ETFs to a demographic reality: 10,000-11,000 Americans retire every day. These are people who spent decades accumulating wealth and now need to protect it while still generating returns. For most of their investing lives, the answer was to shift from stocks to bonds as they got older. But the bond market of 2020-2023 showed that strategy has limits. Bonds offered minimal income at the low, then lost 13% in a single year when rates rose.

That experience broke the mental model for many retirees and their advisors. Buffer ETFs offer a defined, quantifiable outcome that an advisor can show a nervous client: "Your worst case over the next 12 months is X, and your best case is Y." That certainty is what's driving adoption, especially among advisors with large books of near-retirees and retirees who experienced the 2022 bond rout firsthand and don't trust fixed income to protect them anymore.

Key Takeaways

• Allianz offers four defined outcome products: 10% buffer (12-month and 6-month), 20% buffer (12-month), and a 5% floor (6-month), all using FLEX options that reset at the end of each outcome period.
• Unlike structured notes, Allianz's buffered ETFs trade daily. Investors can enter or exit any day, with published metrics showing the remaining buffer and cap at the current price.
• The options packages are set at inception and held through the outcome period with no active trading required, which simplifies the product and reduces operational risk.
• About 10,000-11,000 Americans retire daily, and the 2022 bond market crash broke many advisors' confidence in using fixed income alone for downside protection.
• Johan's career spanned endowment management, pension consulting, and insurance company risk management before landing at Allianz, giving him deep experience in every approach to managing portfolio risk.

Listen to the full conversation on Spotify, Apple Podcasts, or YouTube.