Nobody can predict when the next major market downturn, or what finance academician Nassim Taleb calls a “black swan event,” will occur. For a portfolio that’s ill-equipped to handle the next major market event, it could be its swan song when (not if) that takes place. This is where having insurance-like protection is beneficial with the Amplify BlackSwan Growth & Treasury Core ETF (SWAN ).
Bonds, namely risk-free Treasuries, can serve as the ideal ballast for a portfolio if adhering to a traditional 60-40 split. 2022 aside, this can be beneficial when the equities market heads south, but what happens when it returns to the upside? This is where the SWAN ETF can spread its wings. It can capture the upside market participation while still maintaining its protection profile by holding Treasuries.
The “Liberation Day” sell-offs earlier this year are a prime example of how SWAN can be a complementary component in investors’ portfolios, or even a core equity solution to mitigate volatility. The S&P 500 lost 15.28% on April 8, but SWAN was able to mute the effects of the downturn with only a 5.87% loss. When the sell-offs subsided, SWAN went up alongside the S&P 500, gaining almost 12% year-to-date. In a market marathon, SWAN can help catch you if you fall, and then run with you after getting up.
How Does SWAN Do It?
At 49 basis points, the proverbial heart of SWAN is the S-Network BlackSwan Core Index that it tracks. SWAN seeks to buffer the impact of a black swan event by allocating 90% of of its assets into safe-haven U.S. Treasury securities. To capture the upside, the fund will allocate 10% of its assets in the SPDR S&P 500 ETF (SPY ) using a combination of in-the-money LEAP and FLEX options.
That interplay between the exposure to Treasuries and SPY options gives SWAN its insurance-like benefits that can also pay an investor back. Typical insurance collects a premium and only pays out when a loss occurs. When the broad market via the S&P 500 trends higher, investors continue to reap the benefits of a higher market while the Treasuries exposure provides the protection. Furthermore, the payout isn’t just the upside in the S&P 500. With a 30-day SEC yield of 2.92% (as of September 30), SWAN also provides a quarterly distribution.
Investors can always create their ideal portfolio with a combination of stocks in conjunction with a safety mechanism by exposure to individual benchmark Treasuries or other bonds. But SWAN protects against the downside while still capturing the upside with the inherent benefits of flexibility and tax efficiency in an ETF investment vehicle.
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VettaFi LLC (“VettaFi”) is the index provider for SWAN, which it receives an index licensing fee. However, UFO is not issued, sponsored, endorsed or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of SWAN.
