Circuit-breaking market activity like the ones we’ve been seeing lately amid the coronavirus-laden volatility makes the Amplify BlackSwan Growth & Treasury Core ETF (NYSEArca: SWAN) a prime play to consider.
SWAN seeks results that generally correspond to the price and yield of the S-Network BlackSwan Core Total Return Index. SWAN will invest at least 80% of its total assets in the securities that comprise the index, which will primarily include U.S. Treasury securities and long-dated call options (“LEAP Options”) on the SPDR S&P 500 ETF Trust (NYSEArca: SPY).
“The theory behind Black Swan is to own S&P exposure but to also own U.S. Treasurys. During times of market crisis, Treasurys are bought up like crazy and they act as a great negative-correlated asset to equity exposure,” said Amplify founder and CEO Christian Magoon on an episode of CNBC’s “ETF Edge.”
Furthermore, the index is a rules-based, quantitative index that seeks to provide capital protection against the unpredictable, rare and highly disruptive events referred to as “black swans.”
- A black swan event is an event that is unpredictable to the observer.
- A black swan event results in severe and widespread consequences.
- After the occurrence of a black swan event, people will rationalize the event as having been predictable–also known as the hindsight bias.
A prime example of a black swan event would be the 2008 financial crisis, but more recent events like the coronavirus outbreak could also be deemed a black swan-type event.
SWAN seeks to buffer the impact of a black swan event since 90% of SWAN will be invested in safe-haven U.S. Treasury securities, while approximately 10% will be invested in SPY LEAP Options in the form of in-the-money calls. This gives investors exposure to capture any potential upside by staying invested in the S&P 500 if, for example, a permanent trade deal is negotiated between the U.S. and China.
As mentioned, SWAN will absorb any negative market downturns by investing in the tried-and-true safe haven of Treasury notes if negotiations happen to go awry between the U.S. and China–due to their negative correlation with the S&P 500. Of course, anything can derail a 2019 comeback of U.S. equities, but however a black swan manifests itself, SWAN has investors prepared at a low cost with a 0.49 percent expense ratio.
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