Thursday, 13 January 2022 17:25

Are ETFs Piggybacking on Annuities?

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Covid-19’s continued crisis and the growing number of new strands have put lots of pressure on bond markets which has spiked an interest in annuities because there is no yield in fixed income. However, ETFs are looking to capitalize on annuities growing popularity because a defined outcome ETFs offer a lot of the same advantages as annuities. Buffer or defined outcome ETFs use options to track indices which means that by buying a series of put options and selling a series of call options they cap and floor their earnings which means a smooth stable ride that is an alternative to bond markets and annuities as an equity hedge. They also have an advantage over annuities because they don’t have the hefty upfront costs annuities usually have.

FINSUM: This is a great product to hedge the S&P but it isn’t the guaranteed income an annuity provides.

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