AllianceBernstein launches one buffered and four fixed income ETFs

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AllianceBernstein has launched five new exchange traded funds, including a buffered ETF, bringing the company’s year-old line-up to 12 ETFs.

The addition of the buffered ETF and four fixed income ETFs will bring AB’s total number of active equity ETFs to five and active bond ETFs to seven.

The Conservative Buffer ETF invests in a combination of exchange traded options contracts on its underlying ETF, State Street’s $446.5bn SPDR S&P 500 ETF, and offers a 15 per cent downside buffer and a variable upside cap on the returns of the S&P 500, said Brett Sheely, AB’s head of ETF Specialists. Each option contract tracks the State Street ETF and expires in three months from the time of the strike, he added, noting that the ETF is “evergreen”.

“[T]he majority of buffered or defined outcome ETFs in the market today have term maturities and monthly series,” Sheely said. “Option resets are done within [the ETF] on a three-month basis, creating an evergreen solution as opposed to a fixed 12-month period. This means investors do not need to ladder their ETFs and will have more control over when they choose to sell their position versus having the ETF mature.”

This “ratchet feature” is unique to AB’s first buffered ETF and prevents clients from “capping out”, Sheely said. In strong equity markets, once a predefined return is achieved, the strategy will “ratchet” upward by purchasing a new set of options to maintain upside participation, he added.

“The ratchet feature helps investors avoid giving up returns in strong markets,” Sheely said. “In comparison, investors in traditional buffered products — ie, those without a ratchet feature — wouldn’t be able to participate as they would be capped out. In contrast, there is no ratchet feature in falling markets.”

AB’s buffered ETF has an expense ratio of 69 basis points.

The four fixed income ETFs include the Tax-Aware Intermediate Municipal and Tax-Aware Long Municipal ETFs, which invest principally in a national portfolio of both municipal and taxable fixed income securities, the announcement said. Both ETFs will invest at least 80 per cent of their assets in municipal securities.

Those ETFs will carry a 28-bp expense ratio.

The manager also launched the Corporate Bond and Core Plus Bond ETFs.

The Corporate Bond ETF invests primarily in US dollar-denominated corporate debt securities issued by US and foreign companies, while the Core Plus Bond ETF invests at least 80 per cent of its assets in fixed income securities, including corporate bonds and debt as well as mortgage- and other asset-backed securities, the announcement said.

The Corporate Bond and Core Plus Bond ETFs carry expense ratios of 30 bps and 33 bps, respectively, prospectuses show.

AB launched its first pair of ETFs, the now-$587mn Ultra Short Income and now-$290mn Tax-Aware Short Duration ETFs, in September 2022. The firm spent the next year expanding its ETF line-up to include one more fixed income ETF and four equity ETFs.

There were 213 buffered ETFs in the US with $32bn in combined assets as of November 30, Morningstar data shows. Investors piled a combined $10.5bn into those products during the year ended that date.

Active bond ETFs, meanwhile, had a combined $169.8bn in assets and recorded $30.1bn in net inflows during the year ended November 30, according to Morningstar. Their passive counterparts had $1.3tn in combined assets and garnered $169.1bn in net inflows over the same period.

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