Amplify ETFs has launched the Amplify BlackSwan Growth & Treasury Core ETF (SWAN US) on NYSE Arca.
“Black swan” is the name given to an event that deviates beyond what is normally expected of a situation and would be extremely difficult to predict.
The fund is linked to the S-Network BlackSwan Core Total Return Index
This index delivers exposure to US large cap equities, as referenced by the S&P 500 Index, while buffering against the possibility of rare events causing significant market losses, or so-called ‘black swan’ events, as coined by author Nassim Nichols Taleb.
The term is based on an ancient belief that black swans did not exist.
The term encapsulates an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight – such as a stock market crash.
To offer protection against such events, the S-Network index is composed of a 90% allocation to US Treasury securities and a 10% allocation to S&P 500 LEAP options on the SPDR S&P 500 ETF Trust (SPY US). Equity returns are achieved from the options, while the allocation to Treasuries provides downside protection.
LEAPS are long-term equity options that typically extend for two years or more.
The Treasury allocation consists of securities with durations between two and 30 years but will collectively seek to approximate the duration on the ten-year Treasury note.
The fund seeks to capitalize on the frequently negative correlation between Treasury bonds and US stocks during periods of market volatility.
According to the fund’s prospectus, the methodology results in an approximate 70% exposure to the S&P 500 Index during a full market cycle.
“Investors are increasingly looking for rules-based equity strategies that can adapt to various equity market conditions,” said Christian Magoon, CEO of Amplify ETFs. “We believe SWAN offers investors the ability to participate in S&P 500-like returns over a market cycle, while systematically limiting equity market downside.”
The index is rebalanced and reconstituted on a semi-annual basis.
The fund has an expense ratio of 0.49%.