SWAN ETF First Quarter Report with Dan Cupkovic

[Music] this show is sponsored by amplify etfs delivering expanded investment opportunities for investors seeking growth income and managed risk strategies to learn more visit amplifyetfs.com this is the amplify quarterly update on the black swan growth and treasury core etf symbol s-w-a-n my name is jay coulter and joining me for this update is dan kupkovic the director of investments at argy dan thanks for coming on no problem thank you jay all right so since this is the first episode we've done in this amplify series could you tell us a little bit about the construction methodology of swan yeah so to be clear argue is a sub advisor for the swan etf as well as i swan uh and amplify is utilizing you know our portfolio construction methodology that we've done internally on smas for several years now essentially in a nutshell swan has 90 percent of the portfolio in very safe fixed income being us treasury bonds uh with a laddered approach and a target duration of the 10-year treasury and then 10 percent of the portfolio is designed to be in risk on call options uh being leap call options so they're long-term call options on the s p 500 uh index excellent so when did the etf launch so the etf launched back actually on election day 2018. so it was not you know it was coincidental it was kind of interesting that it happened uh but back in november of 2018. okay and then the index how often does it rebalance and is there anything financial advisors should be aware of about the construction or rebalance methodology yeah so the rebalance methodology is twice a year it's in december and in june and it reconstitutes both the fixed income component of the index as well as the call option component i will say the risky call option component is a little bit nuanced in the in the sense that it's sort of like a watch that ticks throughout time so for instance when june approaches and we have to rebalance the june option we do that but we leave the december one unchanged so we're not fully rebalancing all of the calls we only rebalance half of them as to we not really try to realize excess capital gains so it's done a little bit more kind of mechanical approach on the options is it 100 rules based it is 100 rules based excellent so before we get into talking about the first quarter of 2021 given the way this portfolio is constructed i think we'd be remiss if we didn't talk about the first quarter of last year and how the strategy held up could you walk us through what unveil what on what happened in the first quarter of 2020 yeah so absolutely i mean the black swan held true to its name uh during kind of the covet crisis last march we saw equity indices drop between 30 and 40 plus percent and i i believe the pizza trough to swan was more in the six seven eight percent range uh as far as how much it came down p to trough so it held true to its name did very well compared to some of the other low volatility indices and other kind of competitors in the area and i think a lot of people were happy with that which is why we saw quite a few asset flows last year uh during the covet crisis you know counter to that seeing that 2019 you know we were up 22 on swan and change 2020 was 16 plus percent so very solid years 2021 has been a bit more of a challenge and the main reason for that has nothing to do with equities it's the fact that interest rates have been going up so the 10-year treasury is down around four percent year-to-date and when you have 90 of your portfolios exposed to these treasuries it's going to be a headwind for the strategy so we're still above uh breakeven year-to-date we're up roughly 1.6 currently uh but those treasury is kind of struggling in the rising rates it has been a challenge for us thus far in 21. well if it wasn't a challenge then you would be do something you'd be doing something wrong to be going against the methodology of the index it's no different than what advisors have found in their standard 60 40 portfolios but that's not the core of what this particular eta etf is meant to deliver in a portfolio correct exactly i mean at the end of the day if you own any fixed income short of maybe one or two treasuries you are going to experience some challenging time so far in 21 so it's not dissimilar to what you experience in a traditional 50 50 60 40 portfolio it's just being aware of how this is constructed in the mechanics so that nobody's surprised both advisors and clients alike excellent so as we sit here in the second quarter of 2021 how do you see this etf where do you see its place in a portfolio through the rest of the year yeah so i mean i definitely think that this portfolio can be used in a lot of ways and that's kind of the plus and the minus of black swan is in the event that you're kind of worried about the equity markets getting frothy you're seeing some bubbles on the horizon multiples are getting high you're worried about a crash you know a normalized crash you can create a lower correlation environment in your kind of globally diversified or us-based portfolio where you carve swan out as a sleeve of that portfolio let's say between five and twenty percent to lower risk increase sharp ratios uh and get better returns than fixed income only typically uh is what we'd expect for the long run for something like swan so we've seen it kind of in both of those dry powder scenarios and kind of a higher sharp ratio uh you know diversification play uh in 2021 excellent so dan earlier this year amplify launched i swan symbol iswn you guys are the sub advisor here as well walk us through the portfolio construction of this product yeah so really it's a sister fund to swan the primary difference really the only difference is our equity exposure component so the treasuries are fundamentally the same there's some minor nuance differences but at the end of the day we want to get exposure to the ifa index europe asia and the far east so international equity-like exposure with the u.s treasuries so if you're a believer in international markets or you have some exposure to an international developed segment this could be used as that equity hedge uh as that correlation play in those environments so very similar structure really just focusing on that index as opposed to the s p 500 in swan excellent dan we appreciate you coming on to learn more about swan and i swan please visit amplifyetfs.com that's amplifyetfs.com thanks jay you

Channel: Amplify ETFs

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Id: M22zER8qtYI

Length: 7min 24sec (444 seconds)

Published: Tue May 11 2021