SWAN ETF - 10% Leaps / 90% Treasuries

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nullisland
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by nullisland » Wed Mar 25, 2020 5:34 pm

DesertMan wrote:
Wed Mar 25, 2020 4:54 pm
No, I'm not trolling you. I just don't see how the math you've stated above worked out. The explanation you gave for SWAN going down on March 24, 2020 while the S&P 500 went up 7% is that long-term treasuries went down the same amount as the S&P went up so as to cancel out. But TLT (iShares Long Term Treasury ETF) went UP on March 24 (opened 161.25, closed 162.91 per Yahoo Finance CSV). VOO, the S&P 500 ETF, obviously also went up. (YF CSV). So, as I said, the numbers don't line up. Something else is going on. Options voodoo? Herd behavior? Who knows...
TLT gapped down significantly overnight, to get the returns from March 24 you need to measure from the March 23 close. 166 -> 162.91 is a decline of 1.86%.

ChrisBenn
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by ChrisBenn » Wed Mar 25, 2020 5:46 pm

DesertMan wrote:
Wed Mar 25, 2020 4:54 pm
nullisland wrote:
Wed Mar 25, 2020 2:49 pm
99% of the funds assets are in Treasuries, and Treasuries went down yesterday. Long-term treasuries dropped almost 2%. In percentage terms the options did increase quite dramatically in value, but if .6% of your portfolio doubles in value (which is approximately what happened) that's only a .6% gain for the fund overall. That roughly cancelled out the losses from the long-term treasury holdings, so you were left with the return of the intermediate term treasuries. Intermediate term treasuries and SWAN both went down about .7% yesterday, just as expected.

I feel like I may be getting trolled (if so, well played), but if you're serious then I guess I'm not sure why you think there's something suspicious happening here. I don't think a portfolio of call options and treasuries is necessarily appropriate for most people, but it is behaving exactly like that combination of assets is supposed to. I'd encourage you to read the prospectus.
No, I'm not trolling you. I just don't see how the math you've stated above worked out. The explanation you gave for SWAN going down on March 24, 2020 while the S&P 500 went up 7% is that long-term treasuries went down the same amount as the S&P went up so as to cancel out. But TLT (iShares Long Term Treasury ETF) went UP on March 24 (opened 161.25, closed 162.91 per Yahoo Finance CSV). VOO, the S&P 500 ETF, obviously also went up. (YF CSV). So, as I said, the numbers don't line up. Something else is going on. Options voodoo? Herd behavior? Who knows...

Again... I'm not here to judge you or anyone. I'm just doing due diligence as to whether I want an allocation to SWAN.
Also for your back of the napkin reckoning:
On the 24th swan closed at a ~1% discount to NAV. This means it should have been up about a percent more than it was (based on nav) - not unusual in our current high volatility env - was probably corrected at open today.
https://ycharts.com/companies/SWAN/disc ... ium_to_nav

glorat
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by glorat » Wed Mar 25, 2020 6:55 pm

Does anyone know the "kappa" or "vega" number for this portfolio? That's the change in price of the fund due to change in implied vol.

If we have that and we also have implied vol from somewhere (or inferred from VIX if that makes it easier to understand) then we can determine the change in value of this portfolio due NOT to price levels of the underlying assets bue purely due to the volatile nature of the market.

(again, this portfolio is long vol whereas a 3-fund portfolio has zero vol exposure)

JBTX
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by JBTX » Wed Mar 25, 2020 7:02 pm

All of these risk parity or leveraged strategies seem to assume that inflation won't go up materially or you won't get a stagflation type scenario. That seems like a risky assumption. Especially now that we are seeing trillions in fiscal and monetary stimulus. With historically low treasury yields leveraging treasuries seems like a poor risk return scenario.

ChrisBenn
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by ChrisBenn » Wed Mar 25, 2020 7:05 pm

glorat wrote:
Wed Mar 25, 2020 6:55 pm
Does anyone know the "kappa" or "vega" number for this portfolio? That's the change in price of the fund due to change in implied vol.

If we have that and we also have implied vol from somewhere (or inferred from VIX if that makes it easier to understand) then we can determine the change in value of this portfolio due NOT to price levels of the underlying assets bue purely due to the volatile nature of the market.

(again, this portfolio is long vol whereas a 3-fund portfolio has zero vol exposure)
It has two options in it -

SPY 200619C00245000 (QTY 1974)
SPY 201218C00283000 (QTY 2263)

So you could look it up from those. Not much point in quoting it here since it would change constantly.

Note that options are still only ~3.6% of the portfolios value. ( https://www.amplifyetfs.com/swan-holdings.html )

ChrisBenn
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by ChrisBenn » Wed Mar 25, 2020 7:10 pm

JBTX wrote:
Wed Mar 25, 2020 7:02 pm
All of these risk parity or leveraged strategies seem to assume that inflation won't go up materially or you won't get a stagflation type scenario. That seems like a risky assumption. Especially now that we are seeing trillions in fiscal and monetary stimulus. With historically low treasury yields leveraging treasuries seems like a poor risk return scenario.
Technically this fund is holding treasuries and leveraging s&p 500 through derivatives (options).

I don't think this strategy specifically assumes that inflation won't occur or you won't get stagflation. It assumes that, over your investment horizon, the market will go up - and specifically a stock/bond balanced portfolio will go up. Historically this has proved right more than wrong. The main nuance here is this portfolio pays for extra insurance, though the long call option premium, to hedge downside (vs. direct s&p exposure) - so if the market does nothing you loose money.

JBTX
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by JBTX » Wed Mar 25, 2020 8:53 pm

ChrisBenn wrote:
Wed Mar 25, 2020 7:10 pm
JBTX wrote:
Wed Mar 25, 2020 7:02 pm
All of these risk parity or leveraged strategies seem to assume that inflation won't go up materially or you won't get a stagflation type scenario. That seems like a risky assumption. Especially now that we are seeing trillions in fiscal and monetary stimulus. With historically low treasury yields leveraging treasuries seems like a poor risk return scenario.
Technically this fund is holding treasuries and leveraging s&p 500 through derivatives (options).

I don't think this strategy specifically assumes that inflation won't occur or you won't get stagflation. It assumes that, over your investment horizon, the market will go up - and specifically a stock/bond balanced portfolio will go up. Historically this has proved right more than wrong. The main nuance here is this portfolio pays for extra insurance, though the long call option premium, to hedge downside (vs. direct s&p exposure) - so if the market does nothing you loose money.
The late 70s was horrible on stocks and bonds. If you thought there were any chance something close to that can happen you wouldn't leverage both. When interest rates drop for 30 years to near zero people assume such events like that won't happen again.

I don't expect interest rates to go up anytime soon, but it is the things we don't expect that get us. We have grown to assume all major market drops will be accompanied by bond market rallies.

ChrisBenn
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by ChrisBenn » Wed Mar 25, 2020 9:32 pm

JBTX wrote:
Wed Mar 25, 2020 8:53 pm
ChrisBenn wrote:
Wed Mar 25, 2020 7:10 pm
JBTX wrote:
Wed Mar 25, 2020 7:02 pm
All of these risk parity or leveraged strategies seem to assume that inflation won't go up materially or you won't get a stagflation type scenario. That seems like a risky assumption. Especially now that we are seeing trillions in fiscal and monetary stimulus. With historically low treasury yields leveraging treasuries seems like a poor risk return scenario.
Technically this fund is holding treasuries and leveraging s&p 500 through derivatives (options).

I don't think this strategy specifically assumes that inflation won't occur or you won't get stagflation. It assumes that, over your investment horizon, the market will go up - and specifically a stock/bond balanced portfolio will go up. Historically this has proved right more than wrong. The main nuance here is this portfolio pays for extra insurance, though the long call option premium, to hedge downside (vs. direct s&p exposure) - so if the market does nothing you loose money.
The late 70s was horrible on stocks and bonds. If you thought there were any chance something close to that can happen you wouldn't leverage both. When interest rates drop for 30 years to near zero people assume such events like that won't happen again.

I don't expect interest rates to go up anytime soon, but it is the things we don't expect that get us. We have grown to assume all major market drops will be accompanied by bond market rallies.
A 60/40 two funder also suffers in that scenario. It still comes down to "do we think the market is going to go up or not" (over a certain time horizon), and what is our risk aversion (ability to stomach volatility). Not denying there is risk; if there wasn't any real risk there wouldn't be any excess returns.

If the intent was to caution against bonds specifically in an inflationary/rising rates environment - then again, sure - that is a risk. Depending on ones tolerance you can hedge against it (TIPS, equities), or accept the risk and collect a premium for it. I don't believe inflation is impossible - if anything I don't believe anyone really has a good handle on what is and isn't going to cause inflation (witness ECB's desperate efforts); I prefer to hedge with more equity exposure as opposed to TIPS. Not trying to dismiss your point, I just don't really get what you are proposing as an alternate.

Also in regards to this fund, it's not really as predicated on the desired negative correlation between equities and treasuries as a risk parity or a normal balanced portfolio; The equity exposure through options gives implicit downside protection / a cap on losses; rather it's a bet on the market trending one way or another (if it goes up you get a decent amount of upside exposure through the call options, if it goes down you loose less than you otherwise would - but you still loose money). If anything it's more akin to the classic super basic hedge of holding equities and buying puts.

garlandwhizzer
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by garlandwhizzer » Wed Mar 25, 2020 9:48 pm

There always seems to be enthusiasm for leveraging assets that have done well historically and there is no doubt that both Treasuries and US equity like the S&P 500 have done very well for a very long time. The 90% Treasuries have massively outperformed in the recent market collapse, more than making up for losses in the 10% Leaps. So if we were going backward in time SWAN would be a no-brainer for the recent time period and it would also have done well for risk adjusted returns over a multi-decade time period. If control of equity risk is the main thing that drives your decision making SWAN looks superb on backtesting. Important to bear in mind, however, is the fact that we've had 38 years of ever decreasing inflation and ever decreasing rates which has been the major driving force in Treasuries outstanding return performance with no risk. From where rates are now, the chances for a replay of that 38 years is essentially zero. In 1982, 10 year Treasuries yielded about 15%. They now yield 0.84%, a 14.16% difference in the starting point. Long term backtesting suggests we'll do just fine if we load up on what has performed well over the multi-decade time frame. If significant and increasing inflation occurs in the future, however, Treasuries with today's yields are toast and this portfolio has a 90% weight in them. No one expects that inflation outcome. No one expected COVID-19 would incite a global recession either. Investors in 1982 believed significant and probably increasing inflation would keep going for the next 4 decades, one reason why yields were so high then. Load the portfolio with Treasuries especially LTT now would be a sure winner if we were going backward in time, but their currently yields are the lowest in history. Generally in market history low yields at a starting point do not suggest a bond bull market in the long term future. History suggests the opposite as we see in the case of 1982 yields which started this bond bull market. The future of SWAN may not be as brilliant as its recent past.

Garland Whizzer

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ether161
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by ether161 » Wed Mar 25, 2020 9:57 pm

Reminds me of this strategy
viewtopic.php?f=10&t=288192

ChrisBenn
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by ChrisBenn » Wed Mar 25, 2020 11:13 pm

garlandwhizzer wrote:
Wed Mar 25, 2020 9:48 pm
There always seems to be enthusiasm for leveraging assets that have done well historically and there is no doubt that both Treasuries and US equity like the S&P 500 have done very well for a very long time. The 90% Treasuries have massively outperformed in the recent market collapse, more than making up for losses in the 10% Leaps. So if we were going backward in time SWAN would be a no-brainer for the recent time period and it would also have done well for risk adjusted returns over a multi-decade time period. If control of equity risk is the main thing that drives your decision making SWAN looks superb on backtesting. Important to bear in mind, however, is the fact that we've had 38 years of ever decreasing inflation and ever decreasing rates which has been the major driving force in Treasuries outstanding return performance with no risk. From where rates are now, the chances for a replay of that 38 years is essentially zero. In 1982, 10 year Treasuries yielded about 15%. They now yield 0.84%, a 14.16% difference in the starting point. Long term backtesting suggests we'll do just fine if we load up on what has performed well over the multi-decade time frame. If significant and increasing inflation occurs in the future, however, Treasuries with today's yields are toast and this portfolio has a 90% weight in them. No one expects that inflation outcome. No one expected COVID-19 would incite a global recession either. Investors in 1982 believed significant and probably increasing inflation would keep going for the next 4 decades, one reason why yields were so high then. Load the portfolio with Treasuries especially LTT now would be a sure winner if we were going backward in time, but their currently yields are the lowest in history. Generally in market history low yields at a starting point do not suggest a bond bull market in the long term future. History suggests the opposite as we see in the case of 1982 yields which started this bond bull market. The future of SWAN may not be as brilliant as its recent past.

Garland Whizzer

This strategy looks to treasuries to be more of a stable value store, and depends on equities for its upside. Its effective duration is intermediate, at 10 years - not lt (20+). I think you might be incorrectly conflating this with HEDGEFUNDIE'S strategy, which has a markedly different performance profile. I haven't seen anyone talk about backtesting this strategy (the options inclusion make that more complex).

JBTX
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by JBTX » Thu Mar 26, 2020 12:54 am

ChrisBenn wrote:
Wed Mar 25, 2020 9:32 pm
JBTX wrote:
Wed Mar 25, 2020 8:53 pm
ChrisBenn wrote:
Wed Mar 25, 2020 7:10 pm
JBTX wrote:
Wed Mar 25, 2020 7:02 pm
All of these risk parity or leveraged strategies seem to assume that inflation won't go up materially or you won't get a stagflation type scenario. That seems like a risky assumption. Especially now that we are seeing trillions in fiscal and monetary stimulus. With historically low treasury yields leveraging treasuries seems like a poor risk return scenario.
Technically this fund is holding treasuries and leveraging s&p 500 through derivatives (options).

I don't think this strategy specifically assumes that inflation won't occur or you won't get stagflation. It assumes that, over your investment horizon, the market will go up - and specifically a stock/bond balanced portfolio will go up. Historically this has proved right more than wrong. The main nuance here is this portfolio pays for extra insurance, though the long call option premium, to hedge downside (vs. direct s&p exposure) - so if the market does nothing you loose money.
The late 70s was horrible on stocks and bonds. If you thought there were any chance something close to that can happen you wouldn't leverage both. When interest rates drop for 30 years to near zero people assume such events like that won't happen again.

I don't expect interest rates to go up anytime soon, but it is the things we don't expect that get us. We have grown to assume all major market drops will be accompanied by bond market rallies.
A 60/40 two funder also suffers in that scenario. It still comes down to "do we think the market is going to go up or not" (over a certain time horizon), and what is our risk aversion (ability to stomach volatility). Not denying there is risk; if there wasn't any real risk there wouldn't be any excess returns.

If the intent was to caution against bonds specifically in an inflationary/rising rates environment - then again, sure - that is a risk. Depending on ones tolerance you can hedge against it (TIPS, equities), or accept the risk and collect a premium for it. I don't believe inflation is impossible - if anything I don't believe anyone really has a good handle on what is and isn't going to cause inflation (witness ECB's desperate efforts); I prefer to hedge with more equity exposure as opposed to TIPS. Not trying to dismiss your point, I just don't really get what you are proposing as an alternate.

Also in regards to this fund, it's not really as predicated on the desired negative correlation between equities and treasuries as a risk parity or a normal balanced portfolio; The equity exposure through options gives implicit downside protection / a cap on losses; rather it's a bet on the market trending one way or another (if it goes up you get a decent amount of upside exposure through the call options, if it goes down you loose less than you otherwise would - but you still loose money). If anything it's more akin to the classic super basic hedge of holding equities and buying puts.


Most 60/40 funds are obviously only 40% bonds, and typically a bit shorter duration. This is putting 90% of your assets in something that does have significant duration risk that yields about 1.0% nominal. By stretching the duration and making it most of your portfolio you are effectively leveraging it, although not in the traditional sense.

JBTX
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by JBTX » Thu Mar 26, 2020 12:55 am

garlandwhizzer wrote:
Wed Mar 25, 2020 9:48 pm
There always seems to be enthusiasm for leveraging assets that have done well historically and there is no doubt that both Treasuries and US equity like the S&P 500 have done very well for a very long time. The 90% Treasuries have massively outperformed in the recent market collapse, more than making up for losses in the 10% Leaps. So if we were going backward in time SWAN would be a no-brainer for the recent time period and it would also have done well for risk adjusted returns over a multi-decade time period. If control of equity risk is the main thing that drives your decision making SWAN looks superb on backtesting. Important to bear in mind, however, is the fact that we've had 38 years of ever decreasing inflation and ever decreasing rates which has been the major driving force in Treasuries outstanding return performance with no risk. From where rates are now, the chances for a replay of that 38 years is essentially zero. In 1982, 10 year Treasuries yielded about 15%. They now yield 0.84%, a 14.16% difference in the starting point. Long term backtesting suggests we'll do just fine if we load up on what has performed well over the multi-decade time frame. If significant and increasing inflation occurs in the future, however, Treasuries with today's yields are toast and this portfolio has a 90% weight in them. No one expects that inflation outcome. No one expected COVID-19 would incite a global recession either. Investors in 1982 believed significant and probably increasing inflation would keep going for the next 4 decades, one reason why yields were so high then. Load the portfolio with Treasuries especially LTT now would be a sure winner if we were going backward in time, but their currently yields are the lowest in history. Generally in market history low yields at a starting point do not suggest a bond bull market in the long term future. History suggests the opposite as we see in the case of 1982 yields which started this bond bull market. The future of SWAN may not be as brilliant as its recent past.

Garland Whizzer
This very much. Well said.

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physixfan
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by physixfan » Sat Apr 04, 2020 4:26 pm

guyinlaw wrote:
Mon Sep 30, 2019 11:32 am
Assuming the following
NTSX - 90/60/-50
SWAM - 75/90/-65

Here is portfolio visualizer comparison.
PV Link

Their performance is pretty similar backtesting from 1992.

Max draw-down of simulated NTSX was 40% vs 27% for SWAN.

=======

NTSX has 0.2% expense vs SWAM has 0.49% -- this will add up.

AUM of NTSX is less $36M vs. $117M for SWAM . Both are relatively new ETFs (8/18 vs 11/18).

Which is a better implementation Treasury Futures (NTSX) OR SP500 leaps (SWAN)?

https://www.etf.com/SWAN
https://www.etf.com/NTSX
Very interesting, thanks for your PV simulation!

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willthrill81
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by willthrill81 » Tue Apr 14, 2020 8:29 pm

guyinlaw wrote:
Mon Sep 30, 2019 11:32 am
Assuming the following
NTSX - 90/60/-50
SWAM - 75/90/-65

Here is portfolio visualizer comparison.
PV Link

Their performance is pretty similar backtesting from 1992.

Max draw-down of simulated NTSX was 40% vs 27% for SWAN.

=======

NTSX has 0.2% expense vs SWAM has 0.49% -- this will add up.

AUM of NTSX is less $36M vs. $117M for SWAM . Both are relatively new ETFs (8/18 vs 11/18).

Which is a better implementation Treasury Futures (NTSX) OR SP500 leaps (SWAN)?

https://www.etf.com/SWAN
https://www.etf.com/NTSX
Good comparison.

Given that NTSX effectively has greater stock exposure and a lower ER, I would expect it to outperform SWAN over the long-term. The difference in max drawdowns is meaningful though.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

marshall
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by marshall » Tue Apr 14, 2020 9:26 pm

SWAN is difficult to model on PV before it’s inception date. Once the 10% LEAPS allocation gets wiped out, there is no more stock exposure and the portfolio is down around 10%. This leaves you with only interest rate risk on the Treasury Bonds. In a given year, I could see it going down maybe 15% but it’s hard to imagine a scenario where it’s down more than that. The LEAPS allocation does get replenished every 6 months (5% twice a year) so a multi-year downturn could hurt SWAN further. It was interesting to see the Treasurys play defense in the SWAN ETF during the first quarter stock downturn.

The SWANXT index is modeled back to 2006 in the following link ...

https://snetworkglobalindexes.com/prese ... tation.pdf

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physixfan
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by physixfan » Wed Apr 15, 2020 12:48 am

marshall wrote:
Tue Apr 14, 2020 9:26 pm
SWAN is difficult to model on PV before it’s inception date. Once the 10% LEAPS allocation gets wiped out, there is no more stock exposure and the portfolio is down around 10%. This leaves you with only interest rate risk on the Treasury Bonds. In a given year, I could see it going down maybe 15% but it’s hard to imagine a scenario where it’s down more than that. The LEAPS allocation does get replenished every 6 months (5% twice a year) so a multi-year downturn could hurt SWAN further. It was interesting to see the Treasurys play defense in the SWAN ETF during the first quarter stock downturn.

The SWANXT index is modeled back to 2006 in the following link ...

https://snetworkglobalindexes.com/prese ... tation.pdf
Thanks, the chart inside this pdf is really good!

columbia
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by columbia » Sun May 24, 2020 12:58 pm

Reading through this, it seems like SWAN acted as expected.

Does anyone here own it and how have they deployed it?
If you leave your head in the sand for too long, you might get run over by a Jeep.

HEDGEFUNDIE
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by HEDGEFUNDIE » Sun May 24, 2020 1:08 pm

I am strongly considering adding this to my taxable portfolio. Anyone know what the tax efficiency on this is? Specifically how are LEAPs taxed?

From the PDF that marshall posted above:
Rebalancing of options:
• Every6months,eithertheJuneoptionortheDecemberoptionwillbe rolled to the following year.
• Ifoptionsareatanetlossonthefirsttradingdayofrebalancemonth,the index is rebalanced on the first business day of trading of that rebalance month (June or December).
• Ifoptionsareat a gain,rebalanceoccursat365+1tradingdaysforthe option to make the gain long-term.
2019 distributions were around 4% of beginning of year price.

ChrisBenn
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by ChrisBenn » Sun May 24, 2020 2:34 pm

HEDGEFUNDIE wrote:
Sun May 24, 2020 1:08 pm
I am strongly considering adding this to my taxable portfolio. Anyone know what the tax efficiency on this is? Specifically how are LEAPs taxed?

From the PDF that marshall posted above:
Rebalancing of options:
• Every6months,eithertheJuneoptionortheDecemberoptionwillbe rolled to the following year.
• Ifoptionsareatanetlossonthefirsttradingdayofrebalancemonth,the index is rebalanced on the first business day of trading of that rebalance month (June or December).
• Ifoptionsareat a gain,rebalanceoccursat365+1tradingdaysforthe option to make the gain long-term.
2019 distributions were around 4% of beginning of year price.
I hold a chunk of assets in it (in a taxable account) that I want liquid, but may not ever utilize - so still want reasonable growth (business opportunities, emergency fund, etc). I didn't invest until earlier this year -- but so far it's performed as well/better than expected.

Fidelity's tax estimate looks reasonable - https://screener.fidelity.com/ftgw/etf/ ... mbols=SWAN
Shows about 1.5% return lost for the previous year due to taxes (for similar gains VOO was around .8 for comparison). Their methodology/rate estimates are shown here: https://www.fidelity.com/webcontent/ap0 ... .shtml#how

The leaps, since they are on SPY and not SPX would be taxed the same as equities I believe - so based on the methodology you posted only ltcg , but stcl. You just have a forced ltcg distribution sometimes.

For 2019 virtually all the ordinary income was from the treasuries: https://amplifyetfs.com/Data/Sites/6/me ... t_2019.pdf

HEDGEFUNDIE
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by HEDGEFUNDIE » Sun May 24, 2020 4:12 pm

ChrisBenn wrote:
Sun May 24, 2020 2:34 pm
HEDGEFUNDIE wrote:
Sun May 24, 2020 1:08 pm
I am strongly considering adding this to my taxable portfolio. Anyone know what the tax efficiency on this is? Specifically how are LEAPs taxed?

From the PDF that marshall posted above:
Rebalancing of options:
• Every6months,eithertheJuneoptionortheDecemberoptionwillbe rolled to the following year.
• Ifoptionsareatanetlossonthefirsttradingdayofrebalancemonth,the index is rebalanced on the first business day of trading of that rebalance month (June or December).
• Ifoptionsareat a gain,rebalanceoccursat365+1tradingdaysforthe option to make the gain long-term.
2019 distributions were around 4% of beginning of year price.
I hold a chunk of assets in it (in a taxable account) that I want liquid, but may not ever utilize - so still want reasonable growth (business opportunities, emergency fund, etc). I didn't invest until earlier this year -- but so far it's performed as well/better than expected.

Fidelity's tax estimate looks reasonable - https://screener.fidelity.com/ftgw/etf/ ... mbols=SWAN
Shows about 1.5% return lost for the previous year due to taxes (for similar gains VOO was around .8 for comparison). Their methodology/rate estimates are shown here: https://www.fidelity.com/webcontent/ap0 ... .shtml#how

The leaps, since they are on SPY and not SPX would be taxed the same as equities I believe - so based on the methodology you posted only ltcg , but stcl. You just have a forced ltcg distribution sometimes.

For 2019 virtually all the ordinary income was from the treasuries: https://amplifyetfs.com/Data/Sites/6/me ... t_2019.pdf
Apparently there was a STCG last year. Not sure why.

ChrisBenn
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by ChrisBenn » Sun May 24, 2020 4:45 pm

HEDGEFUNDIE wrote:
Sun May 24, 2020 4:12 pm
ChrisBenn wrote:
Sun May 24, 2020 2:34 pm
HEDGEFUNDIE wrote:
Sun May 24, 2020 1:08 pm
I am strongly considering adding this to my taxable portfolio. Anyone know what the tax efficiency on this is? Specifically how are LEAPs taxed?

From the PDF that marshall posted above:
Rebalancing of options:
• Every6months,eithertheJuneoptionortheDecemberoptionwillbe rolled to the following year.
• Ifoptionsareatanetlossonthefirsttradingdayofrebalancemonth,the index is rebalanced on the first business day of trading of that rebalance month (June or December).
• Ifoptionsareat a gain,rebalanceoccursat365+1tradingdaysforthe option to make the gain long-term.
2019 distributions were around 4% of beginning of year price.
I hold a chunk of assets in it (in a taxable account) that I want liquid, but may not ever utilize - so still want reasonable growth (business opportunities, emergency fund, etc). I didn't invest until earlier this year -- but so far it's performed as well/better than expected.

Fidelity's tax estimate looks reasonable - https://screener.fidelity.com/ftgw/etf/ ... mbols=SWAN
Shows about 1.5% return lost for the previous year due to taxes (for similar gains VOO was around .8 for comparison). Their methodology/rate estimates are shown here: https://www.fidelity.com/webcontent/ap0 ... .shtml#how

The leaps, since they are on SPY and not SPX would be taxed the same as equities I believe - so based on the methodology you posted only ltcg , but stcl. You just have a forced ltcg distribution sometimes.

For 2019 virtually all the ordinary income was from the treasuries: https://amplifyetfs.com/Data/Sites/6/me ... t_2019.pdf
Apparently there was a STCG last year. Not sure why.
Treasury rolls maybe?

The april 2019 holdings: https://amplifyetfs.com/Data/Sites/6/me ... Report.pdf
and oct 2019 holdings: https://amplifyetfs.com/Data/Sites/6/me ... Report.pdf
show a change in treasuries occurred between the two dates, so that's my guess.

ChrisBenn
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Re: SWAN ETF - 10% Leaps / 90% Treasuri

Post by ChrisBenn » Thu May 28, 2020 2:02 pm

HEDGEFUNDIE wrote:
Sun May 24, 2020 1:08 pm
I am strongly considering adding this to my taxable portfolio. Anyone know what the tax efficiency on this is? Specifically how are LEAPs taxed?

From the PDF that marshall posted above:
Rebalancing of options:
• Every6months,eithertheJuneoptionortheDecemberoptionwillbe rolled to the following year.
• Ifoptionsareatanetlossonthefirsttradingdayofrebalancemonth,the index is rebalanced on the first business day of trading of that rebalance month (June or December).
• Ifoptionsareat a gain,rebalanceoccursat365+1tradingdaysforthe option to make the gain long-term.
2019 distributions were around 4% of beginning of year price.
I emailed Amplify about this and they replied back today and confirmed the issue was due to the fund being new and off period on its first buys -- an excerpt:


...
Thanks for reaching out & for your interest in SWAN. You are correct, because it was a newer fund some of the LEAPs did not have a full year under their belt when the rebalances hit. That again was strictly a result of the fund being in its first year from the launch/inception date. Moving forward the LEAPs positions will always be rolled & rebalanced at 1 year plus as described in the prospectus, which happens every June & December.

As always & per compliance, when discussing tax information, I must advise that I am not a tax professional & that I recommend you consult your tax professional.
...


Which seems reasonable/makes sense to me. I'm expecting much lower/no stcg distributions in the future.

HEDGEFUNDIE
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Re: SWAN ETF - 10% Leaps / 90% Treasuri

Post by HEDGEFUNDIE » Thu May 28, 2020 2:13 pm

ChrisBenn wrote:
Thu May 28, 2020 2:02 pm
HEDGEFUNDIE wrote:
Sun May 24, 2020 1:08 pm
I am strongly considering adding this to my taxable portfolio. Anyone know what the tax efficiency on this is? Specifically how are LEAPs taxed?

From the PDF that marshall posted above:
Rebalancing of options:
• Every6months,eithertheJuneoptionortheDecemberoptionwillbe rolled to the following year.
• Ifoptionsareatanetlossonthefirsttradingdayofrebalancemonth,the index is rebalanced on the first business day of trading of that rebalance month (June or December).
• Ifoptionsareat a gain,rebalanceoccursat365+1tradingdaysforthe option to make the gain long-term.
2019 distributions were around 4% of beginning of year price.
I emailed Amplify about this and they replied back today and confirmed the issue was due to the fund being new and off period on its first buys -- an excerpt:


...
Thanks for reaching out & for your interest in SWAN. You are correct, because it was a newer fund some of the LEAPs did not have a full year under their belt when the rebalances hit. That again was strictly a result of the fund being in its first year from the launch/inception date. Moving forward the LEAPs positions will always be rolled & rebalanced at 1 year plus as described in the prospectus, which happens every June & December.

As always & per compliance, when discussing tax information, I must advise that I am not a tax professional & that I recommend you consult your tax professional.
...


Which seems reasonable/makes sense to me. I'm expecting much lower/no stcg distributions in the future.
Awesome thank you!

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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by corp_sharecropper » Thu May 28, 2020 2:41 pm

If one wanted to diy the equivalent of SWAN, is there 1 (or maybe 2) ETFs that could be used as a replacement for the treasury side of holdings? I'm considering the diy path if I can convince myself I'll be able to avoid some of the psychological pitfalls that may come with mechanically buying/rolling the LEAPS.

Does SWAN hold the LEAPS all the way until expiration or are they rolling them at 6months on the June/Dec dates?I read the prospectus but can't recall now what their strategy on this was.

guyinlaw
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by guyinlaw » Thu May 28, 2020 2:49 pm

corp_sharecropper wrote:
Thu May 28, 2020 2:41 pm
If one wanted to diy the equivalent of SWAN, is there 1 (or maybe 2) ETFs that could be used as a replacement for the treasury side of holdings? I'm considering the diy path if I can convince myself I'll be able to avoid some of the psychological pitfalls that may come with mechanically buying/rolling the LEAPS.

Does SWAN hold the LEAPS all the way until expiration or are they rolling them at 6months on the June/Dec dates?I read the prospectus but can't recall now what their strategy on this was.
The problem with SWAN is it holds leaps < 1 year leading to Short Term capital Gain (STCG). I hold SPY LEAPs that are >2 years away and roll them after 1 year to only incur LTCG.

I hold Cash, VGIT and EDV to reflect the treasury side..


viewtopic.php?f=10&t=310418
"Equity markets could get worse if the slowdown extends further, but also realize that the markets will rebound far before economic data improve."

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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by ChrisBenn » Thu May 28, 2020 2:56 pm

guyinlaw wrote:
Thu May 28, 2020 2:49 pm
corp_sharecropper wrote:
Thu May 28, 2020 2:41 pm
If one wanted to diy the equivalent of SWAN, is there 1 (or maybe 2) ETFs that could be used as a replacement for the treasury side of holdings? I'm considering the diy path if I can convince myself I'll be able to avoid some of the psychological pitfalls that may come with mechanically buying/rolling the LEAPS.

Does SWAN hold the LEAPS all the way until expiration or are they rolling them at 6months on the June/Dec dates?I read the prospectus but can't recall now what their strategy on this was.
The problem with SWAN is it holds leaps < 1 year leading to Short Term capital Gain (STCG). I hold SPY LEAPs that are >2 years away and roll them after 1 year to only incur LTCG.

I hold Cash, VGIT and EDV to reflect the treasury side..


viewtopic.php?f=10&t=310418
Actually not - note what HEDGEFUNDIE quoted from the prospectus above -
Rebalancing of options:
• Every6months,eithertheJuneoptionortheDecemberoptionwillbe rolled to the following year.
• Ifoptionsareatanetlossonthefirsttradingdayofrebalancemonth,the index is rebalanced on the first business day of trading of that rebalance month (June or December).
• Ifoptionsareat a gain,rebalanceoccursat365+1tradingdaysforthe option to make the gain long-term.
So going forward (there were some startup quirks) it sgould only be ltcg, stcl, or perhaps ltcl.

I hadn't actually caught this and based on the 2019 distributions had the same assumption you did.

JamesDean44
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by JamesDean44 » Thu May 28, 2020 3:02 pm

corp_sharecropper wrote:
Thu May 28, 2020 2:41 pm
If one wanted to diy the equivalent of SWAN, is there 1 (or maybe 2) ETFs that could be used as a replacement for the treasury side of holdings? I'm considering the diy path if I can convince myself I'll be able to avoid some of the psychological pitfalls that may come with mechanically buying/rolling the LEAPS.

Does SWAN hold the LEAPS all the way until expiration or are they rolling them at 6months on the June/Dec dates?I read the prospectus but can't recall now what their strategy on this was.
Treasury side could be a 10 year treasury ETF. That isn't a perfect fit though:

How are the laddered U.S. Treasuries constructed within the portfolio?
The laddered Treasuries have an equal-weighted exposure to the 3-, 5-, 7- and 10-year Treasuries with a “barbell” Treasury
exposure to the 2- and 30-year; this approach seeks to keep the target duration in line with the 10-year Treasury duration.
These exposures are held deliberately to provide access to the entire yield curve, and to help mitigate the Fund’s particular
interest rate risk on any one duration point.

Regarding the LEAPS:

How are the S&P 500 LEAP options constructed within the portfolio?
The 10% portfolio allocation to S&P 500 LEAP allocation is divided into two 5% allocations, December and June call
options. At each semi-annual reconstitution date, the fund will rebalance the LEAP allocation that is expiring and purchase
an allocation equal to 5% of the portfolio in the following year (for instance, June 2019 calls move to June 2020 calls).
The off-month calls are left as-is and not traded (for instance, June is left alone in a December rebalance). This is done to
maintain LEAP exposure and reduce the time-decay of the option value over time.

https://amplifyetfs.com/Data/Sites/6/me ... N_faqs.pdf


FUND HOLDINGS
AS OF 03/31/2020
Treasury Securities (laddered - targeted duration of the 10-yr Treasury Note) % WEIGHT
UNITED STATES TREASURY BONDS 2.250% 08/15/2049 22.42%
UNITED STATES TREASURY NOTES 1.625% 08/15/2029 17.43%
UNITED STATES TREASURY NOTES 1.625% 10/31/2026 16.97%
UNITED STATES TREASURY NOTES 1.500% 10/31/2024 16.66%
UNITED STATES TREASURY NOTES 1.625% 11/15/2022 16.22%
UNITED STATES TREASURY NOTES 1.500% 10/31/2021 4.90%

SPDR S&P long-term options (in-the-money calls)
SPDR S&P CALL OPTIONS 6/20 245 2.70%
SPDR S&P CALL OPTIONS 12/20 283 1.62%

Cash & Other 0.07%

effigy98
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by effigy98 » Thu May 28, 2020 3:11 pm

I think you are better off with NTSX in a more diversified portfolio. Low max drawdown and much higher gains. The fed seems to like supporting this portfolio as well and I appreciate them making us rich so we don't have to do real work.

Something like:
65 NTSX
20 PHYS
5 TVIX
10 TMF

prioritarian
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by prioritarian » Thu May 28, 2020 4:59 pm

The apparently greater downside protection versus NTSX is something that really interests me. I opened a test position with my dry powder/emergency fund.

guyinlaw
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by guyinlaw » Thu May 28, 2020 8:37 pm

SPDR S&P CLL OPT 6/20 245 5.75%
SPDR S&P CLL OPT 12/20 283 3.96%

It has June 2020 and Dec 2020 options.

OK, because June option is a gain, they will wait > 365 days to get LTCG.
Last edited by guyinlaw on Thu May 28, 2020 8:40 pm, edited 1 time in total.
"Equity markets could get worse if the slowdown extends further, but also realize that the markets will rebound far before economic data improve."

HEDGEFUNDIE
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by HEDGEFUNDIE » Thu May 28, 2020 8:39 pm

prioritarian wrote:
Thu May 28, 2020 4:59 pm
The apparently greater downside protection versus NTSX is something that really interests me. I opened a test position with my dry powder/emergency fund.
Yeah this would be great second-wave protection

ChrisBenn
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by ChrisBenn » Thu May 28, 2020 8:42 pm

guyinlaw wrote:
Thu May 28, 2020 8:37 pm
SPDR S&P CLL OPT 6/20 245 5.75%
SPDR S&P CLL OPT 12/20 283 3.96%

It has June 2020 and Dec 2020 options.

June 2020 option will be rolled to June 2021 option. Rolled by a year. This will lead to STCG.
I'm assuming (don't see historical holdings) they bought this option in June 2019. When December came around the option had gains, so per their prospectus they *didn't* rebalance, but let it ride. They will roll it at 1 year + 1 day. So the fund can realize STCL at 6 months from purchase, or LTCG at 12 months + 1 day from purchase (or LTCL at 12 months + 1 day from purchase).

That's what their prospectus said, and that's what Amplify confirmed in the email reply they sent me.

The STCG distribution in December was due to the fund not having been in existence long enough to hold that first round of options for a full year.

guyinlaw
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by guyinlaw » Thu May 28, 2020 8:44 pm

Is there a reason why it holds June 2020 and Dec 2020 options.

Wouldn't it be better to hold 2021 or 2022 LEAP options? Less time value decay of the option.

PS- realized the LTCG thank you.
"Equity markets could get worse if the slowdown extends further, but also realize that the markets will rebound far before economic data improve."

corp_sharecropper
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by corp_sharecropper » Thu May 28, 2020 11:23 pm

guyinlaw wrote:
Thu May 28, 2020 8:37 pm
SPDR S&P CLL OPT 6/20 245 5.75%
SPDR S&P CLL OPT 12/20 283 3.96%

It has June 2020 and Dec 2020 options.

OK, because June option is a gain, they will wait > 365 days to get LTCG.
While their strike is ITM (at least right now; can't remember if this is the one they've already rolled, early, due to recent fund inception, unless I hit back & lose what I've already typed) how do you know the June 245 call is a gain? Do you know what they paid for that option when they bought it? Do they publish what they paid or did you have to find some recorded historical data from the time period they bought it? I'm sure it wouldn't be "difficult" to figure out a ballpark number but it's not as easy as with a stock/ETF. The fact that they mention the possibility of purchasing the LEAPS OTC and the fact that LEAPS have far less volume/liquidity than the underlying/nearer-dated options, makes this seem a little more difficult to figure out unless they publish the info.

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occambogle
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by occambogle » Fri May 29, 2020 1:03 am

Is there a way to simulate SWAN in PortfolioVisualizer?
I've seen these posts in this thread:
viewtopic.php?f=10&t=263557#p4772558
viewtopic.php?f=10&t=263557#p4885144
...but seems not an easy way to accurately replicate. The first one doesn't seem to match actual SWAN since inception very well.

ChrisBenn
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by ChrisBenn » Fri May 29, 2020 6:59 am

occambogle wrote:
Fri May 29, 2020 1:03 am
Is there a way to simulate SWAN in PortfolioVisualizer?
I've seen these posts in this thread:
viewtopic.php?f=10&t=263557#p4772558
viewtopic.php?f=10&t=263557#p4885144
...but seems not an easy way to accurately replicate. The first one doesn't seem to match actual SWAN since inception very well.
PV can't simulate options (not a ding on pv, I haven't seen anything free that would. The closest would be ThinkBack in Think or Swim; you would need to manually make the simulated purchases though).

Your second link is the best option; that poster explained how he cleaned the data and where he sourced it for pv import in his next post: viewtopic.php?f=10&t=263557#p4885371

That requires a PV sub now I think (to import data)? You also have to assume some tracking error and account for ER - but I think it's your best option.

snailderby
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by snailderby » Fri May 29, 2020 7:13 am

occambogle wrote:
Fri May 29, 2020 1:03 am
Is there a way to simulate SWAN in PortfolioVisualizer?
I've seen these posts in this thread:
viewtopic.php?f=10&t=263557#p4772558
viewtopic.php?f=10&t=263557#p4885144
...but seems not an easy way to accurately replicate. The first one doesn't seem to match actual SWAN since inception very well.
This isn't your question, but I believe Amplify has backtested the index that SWAN tracks.

randomguy
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by randomguy » Fri May 29, 2020 9:05 am

JBTX wrote:
Wed Mar 25, 2020 8:53 pm

The late 70s was horrible on stocks and bonds. If you thought there were any chance something close to that can happen you wouldn't leverage both. When interest rates drop for 30 years to near zero people assume such events like that won't happen again.

I don't expect interest rates to go up anytime soon, but it is the things we don't expect that get us. We have grown to assume all major market drops will be accompanied by bond market rallies.
The late 70s were not horrible for stocks.
1975-1979 14.9%
1976-1979 9.6
1977-1979 5.2
1978-1979 12%

And yes real numbers weren't as good but if the costs of implementing this strategy were cheap enough, the stock portion would have done fine. How the bond portion would have done is another issue. I have seen back tests of the 90/60 portfolios and they are all basically great returns for the last 40 years but they underperform over the previous 30 (i.e. when bonds had poor returns). I have a feeling that this will turn out similarly.

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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by HEDGEFUNDIE » Fri May 29, 2020 9:09 am

So let’s review our options here:

PSLDX is 100/100
NTSX is 90/60
SWAN is 70/90
Excellent Adventure is 165/135 :twisted:

Choose your own adventure

JBTX
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by JBTX » Fri May 29, 2020 1:17 pm

randomguy wrote:
Fri May 29, 2020 9:05 am
JBTX wrote:
Wed Mar 25, 2020 8:53 pm

The late 70s was horrible on stocks and bonds. If you thought there were any chance something close to that can happen you wouldn't leverage both. When interest rates drop for 30 years to near zero people assume such events like that won't happen again.

I don't expect interest rates to go up anytime soon, but it is the things we don't expect that get us. We have grown to assume all major market drops will be accompanied by bond market rallies.
The late 70s were not horrible for stocks.
1975-1979 14.9%
1976-1979 9.6
1977-1979 5.2
1978-1979 12%

And yes real numbers weren't as good but if the costs of implementing this strategy were cheap enough, the stock portion would have done fine. How the bond portion would have done is another issue. I have seen back tests of the 90/60 portfolios and they are all basically great returns for the last 40 years but they underperform over the previous 30 (i.e. when bonds had poor returns). I have a feeling that this will turn out similarly.
If you include the very early 80s, and also look at real returns, the picture is far less positive.

Bottom line is if interest rates and / or inflation spikes a leveraged stock/bond portfolio will get pounded. It just doesn't seem like a likely scenario now, but stuff happens.

prioritarian
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by prioritarian » Fri May 29, 2020 1:57 pm

JBTX wrote:
Fri May 29, 2020 1:17 pm
If you include the very early 80s, and also look at real returns, the picture is far less positive.

Bottom line is if interest rates and / or inflation spikes a leveraged stock/bond portfolio will get pounded. It just doesn't seem like a likely scenario now, but stuff happens.
90% of this fund is not leveraged and the 10% that is leveraged is limited to a decline of ~10% (likely less due to cash periodically needed for leap purcahse)

If interest rates spike in an environment when stocks don't perform well (e.g. the early 80s) the rest of my 60-40 portfolio would also suffer. I find this an interesting strategy that has potential to replace a bit of my very significant treasury allocation (which would be pounded even worse than SWAN in the scenario that you are concerned about).

columbia
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by columbia » Fri May 29, 2020 2:00 pm

prioritarian wrote:
Fri May 29, 2020 1:57 pm
JBTX wrote:
Fri May 29, 2020 1:17 pm
If you include the very early 80s, and also look at real returns, the picture is far less positive.

Bottom line is if interest rates and / or inflation spikes a leveraged stock/bond portfolio will get pounded. It just doesn't seem like a likely scenario now, but stuff happens.
90% of this fund is not leveraged and the 10% that is leveraged is limited to a decline of ~10% (likely less due to cash periodically needed for leap purcahse)

If interest rates spike in an environment when stocks don't perform well (e.g. the early 80s) the rest of my 60-40 portfolio would also suffer. I find this an interesting strategy that has potential to replace some of my already significant longer duration treasury position (which would be pounded even worse than SWAN in the scenario that you are concerned about).
I think you’re the first in this thread to comment on how they would use SWAN in a portfolio. I certainly don’t have an intuitive sense of what it’s intended to replace.
If you leave your head in the sand for too long, you might get run over by a Jeep.

prioritarian
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by prioritarian » Fri May 29, 2020 6:27 pm

columbia wrote:
Fri May 29, 2020 2:00 pm
prioritarian wrote:
Fri May 29, 2020 1:57 pm
JBTX wrote:
Fri May 29, 2020 1:17 pm
If you include the very early 80s, and also look at real returns, the picture is far less positive.

Bottom line is if interest rates and / or inflation spikes a leveraged stock/bond portfolio will get pounded. It just doesn't seem like a likely scenario now, but stuff happens.
90% of this fund is not leveraged and the 10% that is leveraged is limited to a decline of ~10% (likely less due to cash periodically needed for leap purcahse)

If interest rates spike in an environment when stocks don't perform well (e.g. the early 80s) the rest of my 60-40 portfolio would also suffer. I find this an interesting strategy that has potential to replace some of my already significant longer duration treasury position (which would be pounded even worse than SWAN in the scenario that you are concerned about).
I think you’re the first in this thread to comment on how they would use SWAN in a portfolio. I certainly don’t have an intuitive sense of what it’s intended to replace.
I already use long-duration treasuries as a hedge so the idea of having something similar with a modest amount of upside is *potentially" attractive. I am also chomping at the bit to return to a more aggressive AA (am 60-40 *only* due to pre-retirement sequence risk) so am more comfortable with risk than some holders of treasuries.

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Steve Reading
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by Steve Reading » Fri May 29, 2020 8:48 pm

prioritarian wrote:
Fri May 29, 2020 1:57 pm
I find this an interesting strategy that has potential to replace a bit of my very significant treasury allocation (which would be pounded even worse than SWAN in the scenario that you are concerned about).
Why don't you replace that very significant portion with a 20/80 mix of stocks and bonds/cash, where the bond/cash portion is identical to the SWAN bond/cash portion? Such a "product" would have similar downside protection while keeping costs much lower (basically negligible) vs the 0.49 ER of SWAN.

as9
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by as9 » Fri May 29, 2020 9:09 pm

I’m tempted to use this for the back half of our emergency fund (currently in HYS).

corp_sharecropper
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by corp_sharecropper » Fri May 29, 2020 11:56 pm

Steve Reading wrote:
Fri May 29, 2020 8:48 pm
prioritarian wrote:
Fri May 29, 2020 1:57 pm
I find this an interesting strategy that has potential to replace a bit of my very significant treasury allocation (which would be pounded even worse than SWAN in the scenario that you are concerned about).
Why don't you replace that very significant portion with a 20/80 mix of stocks and bonds/cash, where the bond/cash portion is identical to the SWAN bond/cash portion? Such a "product" would have similar downside protection while keeping costs much lower (basically negligible) vs the 0.49 ER of SWAN.
While it's relatively easy to do exactly what swan is doing on your own, managing the LEAPS carries enormous psychological pitfalls and temptations. 0.49 is not outrageous at all, only on this forum would anyone even break a sweat getting in a fuss over it. I for one feel perfectly capable of managing the SWAN ETF (and I'll do it for less than half what they charge of those hundreds of millions AUM), but 0.49 is absolutely cheap enough that, when I'm honest with myself, the only reason I have left to DIY this is to scratch an itch to tinker. To me, this is entirely different than paying 0.49 for something like a plain Jane unleveraged SP500 index ETF, obviously no one would do that in 2020 (no one here at least), but it's not like there's a bunch of ways other than playing the role of Mr. Chief Fund Manager yourself to get what Swan is offering.

prioritarian
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by prioritarian » Sat May 30, 2020 12:36 am

Steve Reading wrote:
Fri May 29, 2020 8:48 pm
Why don't you replace that very significant portion with a 20/80 mix of stocks and bonds/cash, where the bond/cash portion is identical to the SWAN bond/cash portion? Such a "product" would have similar downside protection while keeping costs much lower (basically negligible) vs the 0.49 ER of SWAN.
SWAN "leaps" *appear* to provide ~65-70% of the upside potential of the SP500, not 20%. Also, as I stated above, my current position is in the dry powder part of my taxable account whereas the vast majority of my assets are in tax-deferred accounts which currently have an average ER of around 0.02%. I use long treasuries in my taxable account* as a hedge and do not expect them to provide most of the gains/income so I'm not interested in a mostly bond AA in this context.

*I have multiple reasons for not placing all of my bond positions in tax deferred.

ChrisBenn
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by ChrisBenn » Sat May 30, 2020 1:26 am

I think the real potential gotcha is flat or near flat markets. If they don't drop much you don't derive any utility from the call option insurance. If they are flat or don't rise much you are just burning the ER + theta on the options.

For my usecase (EF) I look at those as insurance against volatility (downside) and have made the call that my risk aversion for this fund is different than that of the market on average, so I think it's worth it to me (could be wrong of course :)).

If I didn't have potential immediate need of the funds (EF usecase), but instead had a longer term horizon then I wouldn't pay that insurance/er premium for downside protection.

https://stockcharts.com/h-perf/ui?s=SWA ... 4914002297

It has def. performed as expected -- prev 6 months vs vasix (20/80) and vbiax (60/40)
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Steve Reading
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by Steve Reading » Sat May 30, 2020 7:58 am

prioritarian wrote:
Sat May 30, 2020 12:36 am
SWAN "leaps" *appear* to provide ~65-70% of the upside potential of the SP500, not 20%.
Makes sense. So let me ask you this: How much does S&P 500 need to rise for SWAN to provide a similar return to a 20/80 basic BH portfolio?
prioritarian wrote:
Sat May 30, 2020 12:36 am
Also, as I stated above, my current position is in the dry powder part of my taxable account whereas the vast majority of my assets are in tax-deferred accounts which currently have an average ER of around 0.02%. I use long treasuries in my taxable account* as a hedge and do not expect them to provide most of the gains/income so I'm not interested in a mostly bond AA in this context.
I'm not sure I understand but what I'm saying is that however many dollars in your taxable, dry powder account that you wanted to dedicate to SWAN, dedicate that same number of dollars to a 20/80 split of stocks/bonds with very low ER. I'm saying this substitution will be superior than dedicating it to SWAN because it has similar downside protection and much lower ER. We'll see if the additional upside participation that you determined above would make up for it.

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