Advisors today face clients who are increasingly cautious about risk. Persistent volatility in equities, combined with muted returns in fixed income, has left many investors searching for a middle ground—something that can preserve capital while still offering a pathway to growth. Allianz Investment Management recently introduced an ETF that seeks to address that need head-on: the AllianzIM U.S. Equity Buffer100 Protection ETF (ticker: AIOO).
Unlike traditional protection products, AIOO is engineered to deliver both certainty on the downside and recurring opportunities for upside capture through quarterly resets. In an interview with The Wealth Advisor’s Scott Martin, Charles Champagne, Head of ETF Strategy at AllianzIM, discussed the fund’s unique construction, why quarterly resets matter, and how AIOO aims to serve investors who cannot afford to take losses but still want some participation in equity markets.
Why Advisors Are Looking at 100% Protection
AIOO seeks to deliver a simple proposition: equity-linked returns with no downside exposure over a three-month outcome period. The ETF references the SPDR® S&P 500® ETF Trust (SPY) and uses a package of customized options that aim to create full downside protection combined with upside potential through a participation rate. For investors who are risk-averse—whether because of age, retirement status, or sheer market fatigue—the structure may provide an attractive alternative to cash balances or money market allocations.
Champagne explains that AllianzIM saw an opportunity to improve upon the protection ETF category by addressing gaps in design. “When I say seeks 100% protection, I mean full protection,” he says. “And then, when I say full protection, I mean, this is exposed to equity market returns on the upside but complete protection on the downside.”
The fund tracks SPY through FLEX options, providing exposure to equity market gains while mitigating against quarterly losses. In other words, AIOO mirrors S&P 500 performance on the upside but locks in a buffer that aims to shield investors from downside drawdowns.
The emphasis on protection is deliberate. Many investors, especially retirees or those nearing retirement, don’t tolerate losses well. Even modest drawdowns can create panic, potentially leading to impulsive selling and long-term portfolio damage. AIOO is built to address that risk while still giving clients a chance to grow assets quarter by quarter.
The Case for Quarterly Resets
One of AIOO’s defining features is its shorter outcome periods. Instead of locking investors into a one- or two-year structure, the ETF resets every calendar quarter, recalibrating both the protection and the upside participation rate.
“We are providing a deep protection product with shorter outcome periods of three months,” Champagne says. “Why is this important? Because investors who are risk off and positioning in cash need to be able to react to changes in sentiment.”
In practice, the quarterly reset seeks to allow portfolios to capture protection more frequently while maintaining the ability to participate in market rebounds. Champagne cites market volatility in 2022 as an example: the S&P 500 fell 5% in the first quarter, dropped 16.5% in the second, and lost another 5% in the third—only to rally 7% in the fourth.
“That’s important because investors in our product would have received all that protection in the first three quarters and then participated in the positive return of Q4,” he notes.
The reset mechanism seeks to reduce the feeling of being “trapped” in a long-dated outcome product. It also intends to provide tactical opportunities to shift between conservative positioning and more aggressive equity allocations as market sentiment changes.
Participation Rates and Upside Exposure
Protection alone is rarely enough. AIOO is structured with a participation rate that aims to capture a portion of quarterly S&P 500 gains. AllianzIM opted for a participation rate rather than a fixed cap after evaluating multiple option structures, including capped returns, hurdle rates, and spread-based strategies. Capped exposure often requires a trade-off for downside protection, whereas the AllianzIM design focuses on balancing risk and reward effectively.
Champagne notes that the modeling suggested that a participation framework delivers a more attractive balance of downside certainty and meaningful upside exposure. “When we look at volatility, sensitivities, and interest rates over the past 30 years, we determine that a participation rate can provide the best potential upside for investors in a product with these kinds of characteristics,” he says.
The rate depends heavily on prevailing interest rates at the time of reset, and it is recalculated each quarter. In the current environment, Champagne points out that the participation rate falls in the 20–25% range, but if interest rates climb, the upside potential could increase as well.
Although that exposure may appear modest compared with uncapped equity allocations, it may deliver significant value over time. Even at a 25% participation rate, a few strong quarters in the equity market can compound into a meaningful annualized contribution, especially when measured against the static returns of cash or money market allocations.
The Targeted True Zero
Another point of differentiation for AIOO is its attempt to deliver a “true zero” return in negative quarters. Performance of many protection products still results in a slight negative return net of fees. AllianzIM structured AIOO to account for management expenses within the options package itself, aiming to deliver a smoother experience for investors with the goal of finishing a down quarter at zero, rather than losing a small amount to cost drag.
“We are targeting a true 100%,” Champagne says. “So, there always are instances where variable costs may be more than we had anticipated. But we are truly targeting that zero across the board if it’s a negative market.”
The clarity of a net-zero outcome aims to help advisors and investors focus on upside potential rather than worrying about hidden frictions during downturns. From a planning perspective, that predictability simplifies portfolio construction and client communication.
Addressing a Growing Investor Need
AIOO reflects a shift in investor psychology. According to Champagne, AllianzIM research has shown that investors today—particularly older demographics—are more risk-averse than previous generations were. Many near-retirees cannot afford market drawdowns, yet fixed income no longer provides the yield cushion it once did. Buffered ETFs such as AIOO might give advisors a way to keep such clients in equities without shouldering the full burden of volatility.
“They can’t bear any kind of losses to their portfolio, and where they’re not seeing that outperformance is in the fixed income market, so they look to equity protection products like this and other buffered ETFs to fill that need to apply protection to their portfolio, while also participation and potential upside return,” Champagne says.
By combining complete downside protection, quarterly resets, and S&P 500–linked participation, AIOO seeks to help clients navigate the twin challenges of capital preservation and growth.
Final Takeaways
AllianzIM entered the fully protected ETF category with the intention of differentiation. Rather than replicate existing structures, the firm focused on quarterly outcomes, a true-zero design, and participation-based upside—all features developed in response to investor feedback and market gaps. The result is a strategy positioned to help advisors keep cautious clients invested through volatility rather than retreating entirely to the sidelines.
“Now, we’re not the first issuer here to come to market with a full protection ETF,” Champagne acknowledges. “But I think we were able to craft a product that better suits investors’ needs and provides better possible outcomes than what’s available in the market.”
AIOO is not the best choice for every client. Investors seeking full equity exposure or unconstrained growth may find its participation rate too limited. But for those who prioritize safety yet still want more than cash-like returns, AIOO seeks to provide a thoughtful middle ground.
The ETF’s structure—quarterly resets, targeted true-zero mitigation during downturns, and S&P 500–linked upside—aims to give advisors a versatile tool to use in retirement accounts and conservative portfolios. Importantly, it may provide a reassurance in volatile markets, which might help clients feel more confident and in control of their financial well-being.
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Disclosures
The Buffered ETFs’ investment strategies are different from more typical investment products, and the Funds may be unsuitable for some investors. It is important that investors understand the investment strategy before making an investment. For more information regarding whether an investment in the Funds is right for you, please see the prospectus including “Investor Considerations.” There is no guarantee the Funds will achieve their investment objectives.
FLEX Options Risk: The Fund will utilize FLEX Options issued and guaranteed for settlement by the Options Clearing Corporation (“OCC”). The Fund bears the risk that the OCC will be unable or unwilling to perform its obligations under the FLEX Options contracts. In the unlikely event that the OCC becomes insolvent or is otherwise unable to meet its settlement obligations, the Fund could suffer significant losses.
FLEX Options are customized equity or index options contracts that trade on an exchange, but provide investors with the ability to customize key contract terms like exercise prices, styles, and expiration dates. An options contract is an agreement between a buyer and seller that gives the purchaser of the option the right, but not the obligation, to buy (in the case of a call option), or to sell (in the case of a put option), a particular asset at a specified future date at an agreed upon price (commonly known as the “strike price”).
There is no guarantee that the outcomes sought for an Outcome Period will be realized, and there is no guarantee that the Buffer will limit Fund losses or that participation in the Underlying ETF’s positive returns subject to the Participation Rate will be achieved. The outcomes that the Fund seeks to provide do not include the costs associated with purchasing shares of the Fund or the Fund’s annualized management fee. The Participation Rate and Buffer will be further reduced by brokerage commissions, trading fees, taxes and non-routine or extraordinary expenses not included in the Fund’s unitary management fee. To achieve the target outcomes sought by the Fund for an Outcome Period, an investor must hold Shares for that entire Outcome Period. The Participation Rate and Buffer will be further reduced by brokerage commissions, trading fees, taxes and non-routine or extraordinary expenses not included in the Fund’s unitary management fee.
Investing involves risks. Loss of principal is possible. Investors may lose their entire investment, regardless of when they purchase shares, and even if they hold shares for an entire outcome period. Full extent of participation rates and buffers only apply if held for stated outcome period and are not guaranteed. The participation rate may increase or decrease and may vary significantly after the end of the outcome period.
The Fund’s website, www.allianzIMetfs.com, provides important Fund information (including outcome period start and end dates and the participation rate and buffer), as well as information relating to the potential outcomes of an investment in the Fund on a daily basis. If you are contemplating purchasing shares, please visit the website. Investors considering purchasing shares after the outcome period has begun or selling shares prior to the end of the outcome period should visit the website to fully understand potential investment outcomes.
Allianz Investment Management LLC (AllianzIM), a wholly owned subsidiary of Allianz Life Insurance Company of North America (Allianz), is a registered investment adviser and adviser to AllianzIM ETFs.
Distributed by Foreside Fund Services, LLC. Foreside Fund Services, LLC is not affiliated with Allianz Investment Management LLC or Allianz Life Insurance Company of North America.
Investors should consider the investment objectives, risks, charges, and expenses carefully before investing. For a prospectus with this and other information about the Fund, please call 877.429.3837 or visit www.allianzIMetfs.com to review the prospectus. Read the prospectus carefully before investing.
