With the coronavirus pandemic, trade skirmishes, and a looming presidential election, 2020 has already been a volatile year for investors, with markets climbing to fresh, all-time highs early in the year, only to drop precipitously and then climb back once again. In the process, markets have lugged investors on a roller-coaster of emotions, with some scrambling for safety.
For those investors selling a bit more defensive posturing for the uncertain future, the Direxion Flight to Safety Strategy ETF (FLYT) may offer investors some of the balance and protection they are seeking during such unpredictable periods as this year.
“The Direxion Flight to Safety Strategy ETF (FLYT) is a potential core, multi-asset solution for providing defensive exposures to seek portfolio risk mitigation through periods of market stress,” according to Direxion. “By combining long-term U.S. Treasury bonds, utility stocks, and physical gold into a single portfolio, FLYT is designed to deliver a source of returns uncorrelated to the equity markets, with the ability to provide meaningful appreciation and yield potential over the long term.
The relatively new ETF tracks the Solactive Flight to Safety Index. That benchmark “measures the performance of a volatility-weighted basket of gold, U.S. listed large-capitalization utility stocks and U.S. treasury bonds with remaining maturities of greater than 20 years,” said the company.
Direxion explains that the goal of the fund is to create diversification and protection through the proper mix of assets.
“By combining long-term U.S. Treasury bonds, utility stocks, and physical gold into a single portfolio, FLYT is designed to deliver a source of returns uncorrelated to the equity markets, with the ability to provide meaningful appreciation and yield potential over the long term. The fund may act as a diversified ballast for portfolios while also acting as a source of uncorrelated returns.”
The fund’s largest component is gold bullion, a traditional flight to safety choice, which makes up 22.5% of the ETF’s holdings. Then 34.8% are allocated to utilities stocks, with the remaining 42.7% to Treasuries. The majority of that fixed income exposure is based in long-dated Treasuries, greater than 20 years.
According to Direxion, “The weight of each component will be based on the contribution of the volatility of each component to the overall Index. The least volatile component of the Index, based on each component’s trailing 5-year volatility measure, will receive the largest weighting. The gold component will be limited to 22.5% of the Index, with any excess proportionally distributed to the U.S. Large and Mid-Cap Utilities and U.S. treasury bonds allocations.”
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