Black swan ETF glides past $500m milestone

Aug 14th, 2020 | By | Category: Alternatives / Multi-Asset

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Amplify ETFs‘ BlackSwan Growth & Treasury Core ETF (SWAN US) has glided past the $500 million assets under management milestone thanks to strong investor inflows and steady market performance.

Black swan ETF glides past $500m milestone

Investor concerns about a second market crash have driven strong inflows into the BlackSwan Growth & Treasury Core ETF.

The fund, which provides synthetic exposure to the S&P 500, has proved popular with investors seeking to protect their portfolios against the possibility of so-called ‘black swan’ events – rare and unexpected occurrences that, in the context of investments, can cause significant market losses.

The fund successfully delivered on this objective during the recent stock market sell-off caused by Covid-19, an episode that comfortably satisfies the definition of a black swan event.

While the SPDR S&P 500 ETF (SPY US) crashed -32.7% between 21 February and 23 March amidst the worst of the equity market sell-off, SWAN dropped a modest -8.4%.

The main contributor to SWAN hitting the $500m mark, which it achieved in the latter part of July, has been strong demand from investors with the fund raking in almost $280m in net inflows between April and July and a further $38m month-to-date in August.

The prospect of a second market crash, and the desire to buffer portfolios accordingly, is clearly front of mind for many investors. This fear has also been reflected in inflows into gold ETFs as well as significant interest in defined-outcome equity strategies.

Whether the defensive positioning turns out to be justified remains to be seen, but several factors have the potential to disrupt markets in the future.

These include a resurgence (or second wave) of Covid-19 infections in many countries, stretched valuations (particularly in the tech sector), geopolitical tensions between the US and China, and uncertainties surrounding the US Presidential Election and UK/EU trade negotiations.

With so much in play, it is likely that defensive strategies will continue to attract investors’ attention in the near term.

The methodology

The fund’s protective approach is constructed through a combination of US Treasuries and equity market options.

The underlying S-Network BlackSwan Core Total Return Index is composed of a 90% allocation to US Treasury securities (with an average duration that tracks the ten-year Treasury note) and a 10% allocation to in-the-money LEAP call options on the SPDR S&P 500 ETF.

LEAPs are long-term equity options that typically extend for two years or more.

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 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.

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