Amplify ETFs has unveiled a second ETF in the US designed to protect against so-called ‘black swan’ events, with the latest fund focusing on a universe of international developed-market stocks.
Investors had called for a second Black Swan ETF focused on equity markets outside of the US.
The Amplify BlackSwan ISWN ETF (ISWN US) has listed on NYSE Arca and comes with an expense ratio of 0.49%.
Within financial markets, a ‘black swan’ is a term used to describe a rare and unexpected event that typically causes significant market losses. It is based on a misguided belief that black swans do not exist.
The Covid-19 pandemic and resulting global economic shutdown and stock market sell-off comfortably fit the definition of a black swan event.
Amplify’s existing black swan ETF, the Amplify BlackSwan Growth & Treasury Core ETF (SWAN US), which provides exposure to the S&P 500, successfully navigated through the equity market rout caused by Covid-19.
While the SPDR S&P 500 ETF (SPY US) crashed -32.7% between 21 February and 23 March 2020 amidst the worst of the equity market sell-off, SWAN dropped a modest -8.4%. This record led to rising interest in the fund with assets under management increasing from $143 million at the start of 2020 to $765m by year-end.
According to Amplify, existing investors in SWAN have called for a similar product focused on equity markets outside of the US. With the launch of IWSN, it appears that that call has been heeded.
Methodology
ISWN is linked to the S-Network International BlackSwan Index which consists of a 90% allocation to US Treasury securities and a 10% allocation to LEAP options on the iShares MSCI EAFE ETF (EFA US). 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. Equity returns are achieved from the options, while the allocation to Treasuries provides downside protection by capitalizing on the frequently negative correlation between Treasury bonds and stocks during periods of market volatility.
According to the fund’s prospectus, the methodology results in an approximate 70% exposure to the MSCI EAFE Index during a full market cycle.
ISWN’s index is rebalanced on a semi-annual basis.
Christian Magoon, CEO of Amplify ETFs, commented: “Like never before, the past year has demonstrated the need for risk-mitigation products that not only seek to protect investor portfolios but allow them to stay invested. We’re excited to offer investors domestic and international exposure using this proven and powerful investment philosophy.”