If there’s an investment-savvy reader out there who cares to have a look at and comment on this ETF for us that would be great. Doesn’t an “actively managed basket of put and call options” imply a steady drain on the fund unless and until there is a ‘Black Swan’ event?
The protection strategy
Universa’s proprietary Black Swan Protection Protocol (BSPP) uses an actively managed basket of put and call options that aims to protect the equity index exposure from Black Swan events. The BSPP should generate positive returns during sudden significant market declines. Gains generated from the BSPP are invested into the equity index exposure when it is historically less expensive, giving investors a potential “buy-low” advantage and the future compound growth that comes with it.
via Horizons Universa US Black Swan ETF (HUS.U).
HatTip to Trevor.
Yes it does. The net monthly debit per month to establish the positions will be approx. $1.10, per $100 invested, as I understand, which would translate to a 13.2% loss in the first year not including the .95% annual MER (assuming premiums remain constant month after month) As it’s set-up, you start making money on the downside after the first 20% drop within 36 days or so. Mind you, you have unlimited upside.
Further, as per the Horizons website, the downside gains are capped at 30%. Should the market drop further, the short put they sell to finance the long put option begins to gain in value as well, as the puts are in a “spread” position.
Thanks Trevor! It’s sounding very interesting. I will look into it further.
To update, the ETF is now set up as an collar on the SPY ETF. SPY is owned, with call options sold to finance the long puts. Upside is capped by the sold call, but a massive crash could lead to a gain overall as well.