Risk On or Risk Off, Consider the BlackSwan ETF (SWAN)
During a "risk-off" environment, like the current COVID-19 crisis, the BlackSwan ETF's significant exposure to U.S. Treasuries seeks to buffer against major market declines.
However, during a "risk-on" environment, like we witnessed in 2019, SWAN's exposure to S&P 500 LEAP options seeks to provide participation in the upside of the S&P 500 without any type of artificial performance cap.
Here is a view of how SWAN has done since inception vs. the S&P 500 Total Return Index, seeking to smooth out risk-off and risk-on market environments.
BlackSwan ETF (SWAN) Performance Since Inception (11/6/18 – 3/11/20)
Source: YCharts. The starting price used for this chart is the trading price on 11/6/2018, which differs from the $25.00 inception price. For Illustrative purposes only. Past performance does not guarantee future results. Investors cannot directly invest in an index.
BlackSwan ETF (SWAN) Performance YTD (and Coronavirus Crisis) – 12/31/19 – 3/11/20
Source: YCharts. For Illustrative purposes only. Past performance does not guarantee future results. Investors cannot directly invest in an index.
Source: US Bancorp Fund Services. The starting price for the Since Inception cumulative return is $25.00
The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. The Fund’s gross expense ratio is 0.49%. For the most recent month-end performance, please visit the Fund's website at https://amplifyetfs.com/swan.
The Amplify BlackSwan Growth & Treasury ETF (SWAN) investment objective and strategy differs substantially from the S&P 500 Total Return Index, which is used for comparison purposes as a widely recognized measure of U.S. stock market performance. While the returns of SWAN have exhibited positive (but varying) correlation to the index over time, SWAN may invest in different securities and in different proportions than in the S&P 500 index.
The Standard & Poor's (S&P) 500 Total Return Index is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies by market value, and assumes distributions are reinvested back into the index. It is not possible to invest directly in an index.
Other Key Consideratons
- Potential portfolio fit: core equity, hedged equity, alternative sleeve
- Simple solution with two low-correlated asset classes
- Seeks to pay income distributions on a quarterly basis
- Gross expense ratio: 0.49%
The Fund is not a money market fund. Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. The Fund's return may not match or achieve a high degree of correlation with the return of the underlying Index. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Index. The use of derivative instruments, such as options contracts, can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. Investing in options, including LEAP Options, and other instruments with option-type elements may increase the volatility and/or transaction expenses of the Fund. An option may expire without value, resulting in a loss of the Fund’s initial investment and may be less liquid and more volatile than an investment in the underlying securities. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund.
Amplify Macro-Trend Commentary 4Q 2019
Online Retail Commentary (IBUY & XBUY)
The bifurcation of retail between traditional “bricks” and online retail “clicks” continues with a record 9,300 store closures in 2019 as the “retail apocalypse” claims more victims. Meanwhile, online retail is growing at a double-digit pace as consumers prefer the convenience and selection of digital commerce. The latest data from the US Census Bureau saw Q3 ecommerce sales increase to 11.2% of total retail sales, growing an impressive 16.9% year over year.
Pier 1 Imports, Bed, Bath, & Beyond, Chicos, The Gap, Forever21, Macy’s and Walgreens are among the latest brick and mortar retailers announcing store closures in the coming year.
However, retail overall experienced a bounce after tariff headwinds were mitigated by a proposed U.S.-China trade deal. Consumer confidence and spending was strong in the fourth quarter, culminating in record holiday retail sales.
U.S. online sales grew to a record $142.5 billion this holiday season. Cyber Weekend experienced 18% year-over-year growth, providing more evidence that online retail remains the sweet spot of retail and a source of long-term, disruptive growth going forward.
Some of the top contributors during the quarter were Lands’ End, who posted strong results as it decouples its partnership with struggling retailer Sears. Online car retailer Carvana continues to post strong revenue growth. Online pet pharmacy PetMed Express gained after blasting past both Q2 earnings and sales estimates.
For the year, online postage stamp retailer Stamps.com was the top performer in IBUY after ditching the USPS for a contract with UPS. Other top performers for the year included online auto auction company Copart, Carvana, and China e-commerce retailers Pinduoduo and VIPShop.
Underperforming names in Q4 included online travel company Expedia, who missed earnings estimates, and Overstock.com, who saw the ousting of its founder as he tried to pivot the company toward crypto and blockchain. For the year, home shopping network Qurate retail was the worst performer, followed by Overstock and online travel company TripAdvisor.
Blockchain Commentary (BLOK)
The Amplify Transformational Data Sharing (BLOK) ETF was up in the fourth quarter despite a crypto sell-off during the period. BLOK also had a good year performance-wise.
The ETF’s top performer in Q4 was Z-Holdings (formerly Yahoo Japan), as it inked a merger deal with Naver’s Japanese internet affiliate Line, which is also in the portfolio and was up for the quarter. Tokyo-based Digital Garage gained in Q4 as it settled an options trade on the blockchain. Digital Garage and Z-Holdings were also among the top performers for the year, along with semi chip-maker Advanced Micro Devices and Japanese internet company GMO Internet.
The worst performers in Q4 were Hut 8 Mining and crypto merchant bank Galaxy Digital Holdings, which declined in tandem with the decline in crypto assets during the period. Crypto miner Hut 8 was also the worst performer for the year.
The BLOK ETF by design remains one of the blockchain ETFs most correlated with digital assets. Bitcoin was 2019’s best performing crypto asset even after its recent price downturn, more than doubling YTD.
Rising institutional interest and increased use cases are paving the way for future growth in blockchain and cryptocurrency. After a year of investment in blockchain technology, many of those pilot projects moved from the test stage to the end-user stage in 2019. While Facebook’s proposed stablecoin Libra met resistance, China’s leadership endorsed the concept of blockchain for the first time as a catalyst for economic development. Intercontinental Exchange’s Bakkt launched bitcoin futures contracts. Progress was made on many fronts in 2019, and we believe more milestones will be reached in the coming years as more use-cases go into production.
Battery Metals & EV Commentary (BATT)
The Amplify Advanced Battery Metals and Materials ETF (BATT) gained in the fourth quarter. BATT was down slightly for the year, but the fourth quarter resurgence was encouraging.
BATT’s diversified approach, giving it exposure to multiple critical metals used in the lithium-ion battery supply chain (such as nickel and cobalt), helped performance toward the end of the year as these metals face potential supply shortages. In particular, the ETF’s overweight in nickel relative to other metals boosted performance.
The top contributing names for the quarter were China names such as Ganfeng Lithium, Zhejiang Huayou Cobalt, and Tianqi Lithium, which rallied on news of a U.S.-China trade deal. The worst performing name was cobalt miner Katanga, which suffered on the announcement that Glencore was closing its largest mine in the Congo region. Australian hard-rock lithium spodumene producers Altura Mining continued its decline on overcapacity concerns.
For the year, nickel producer Norilsk was the top performer as nickel prices soared during the year. Conversely, Katanga and Altura were also the worst performers for the year. Despite last year’s slowdown in EV demand, accompanied by reduced China subsidies, an abundance of new EV models being launched in 2020 are expected to spur more enthusiasm and demand. The headwind of trade tariffs has also been abated, renewing investor confidence in the space.
WHY ETF TRANSPARENCY MATTERS NOW
An important ETF characteristic during market volatility
By Christian Magoon
Whenever increased market uncertainty occurs, ETF investors should utilize a feature most ETFs offer: portfolio transparency. The majority of ETFs reveal their exact portfolio holdings on a daily basis via their official website. This real time portfolio transparency allows investors to better understand and address portfolio specific risks. While important during times of market volatility, portfolio transparency is just as valuable to any investor seeking to diversify and follow a long-term asset allocation plan.
A transparent portfolio provides the foundation on which to build both proper portfolio diversification and asset allocation. Proper diversification helps to reduce the concentration risk of an investment portfolio. When an investor seeks to diversify, it is important to know exactly what is owned inside that portfolio. Constant portfolio transparency allows for more accurate portfolio data and decisions. In another related effort to address portfolio risk, asset allocation is a method that tailors a portfolio to best fit an investor’s risk tolerance and time horizon. Predictably the more frequent the transparency of the portfolio, the more precise the asset allocation can be.
Accurately implementing and monitoring a portfolio’s asset allocation and diversification is important in all types of market environments. The portfolio transparency of ETFs provides investors with current and complete information to base crucial decisions on. Should market volatility – or risk - increase in 2018, ETF transparency will only matter more to investors as they seek to understand, position and monitor portfolios in light of marketplace risks.
Opinions expressed are subject to change at any time, are not guaranteed and should not be considered investment advice. Diversification does not assure a profit or protect against a loss in a declining market.
Alpha is a measure of investment performance against a market index used as a benchmark.
Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.
The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. One cannot invest directly in an index.
Past performance does not guarantee future results.