Simplify Volatility Premium ETF (SVOL)
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Market Volatility Ahead? These 3 ETFs Stand Out
Volatility is an essential but dangerous component of investment. On the one hand, the capacity for the price of a security to swing back and forth around a mean provides investors with opportunities to profit using strategic buys or sells of that security.
SVOL: NAV Erosion Is Not The Problem
SVOL's NAV erosion and dividend cuts are expected due to its design. Reinvesting dividends can maintain principal and still capture competitive yields. Despite NAV erosion, SVOL has shown positive total returns and the capability to outperform the S&P 500 and other income funds like JEPI. SVOL's strategy involves shorting VIX futures with treasury bill collateral, leading to inherent NAV erosion.
SVOL: ~15% Monthly Yield That Shouldn't Be Ignored By Passive Income Investors
Option-driven ETFs provide a decent avenue for passive income investors to access high and uncorrelated returns. Yet, in SVOL's case we can talk about introducing an additional layer of diversification as the underlying strategy is quite different from what other common option-driven ETFs apply. Apart from this, SVOL offers ~15% yield and a nice downside protection.
SVOL: Capturing VIX Premia For A 16.12% Yield
The Simplify Volatility Premium ETF sells VIX futures for income, hedging with out-of-the-money VIX calls to mitigate large volatility spikes. SVOL allocates excess capital into diversified fixed-income investments, including other Simplify funds, to enhance returns while maintaining a measured risk approach. The fund's strategy benefits from current market conditions, such as easing geopolitical tensions and favorable VIX-curve shape, making VIX-selling potentially profitable in the near term.
SVOL: Another Dividend Cut, But I'm Not Worried
SVOL sells short VIX futures for income and holds income-producing assets, betting real volatility will be less than expected. Simplify clarified their strategy, revealing the IVV trade is a cash management strategy, not a volatility bet, boosting yield on cash. Despite a declining nominal dividend, SVOL maintains a steady 15-17% yield, showcasing management's commitment to income stability.
SVOL: Generating Alpha With A Unique Income Portfolio Diversifier
SVOL offers investors a unique 16.79% yielding, tax-efficient strategy combining VIX futures contracts and fixed income investments, providing high income and diversification in an equity portfolio. The fund has outperformed the S&P 500 since its inception with half the correlation to the market and higher risk-adjusted returns. Although the fund has proven resilient to sharper spikes in market volatility, it remains untested to Black Swan events.
SVOL: Changing Holdings Make Me Nervous (Rating Downgrade)
I am downgrading SVOL from "strong buy" to "buy" due to increased equity risk and opaqueness in its strategy. SVOL's new strategy involves significant exposure to S&P 500 ETF shares and short futures contracts, raising concerns about prudence. Dividend reductions from $0.32 to $0.28 have been noted, although the distribution yield target remains at 15%+.
SVOL: Big Yield Passing The Tests
SVOL's strategy of shorting VIX futures and using hedges like VIX calls and S&P500 put spreads proved effective during August's dip, preventing permanent capital losses. The fund's portfolio remains heavily invested in Treasury Bills, with increased complexity and diversification into currency futures and multiple VIX call expiration dates. Despite a slight dividend cut to $0.28, the 16% yield is mostly sustainable, supported by expected market growth and improved options trade profits from rate cuts.
SVOL: Is this 16% yielding a good ETF to buy and hold?
The Simplify Volatility Premium ETF (SVOL) has become one of the most popular funds among income investors this year. It has done modestly well since its inception, and has one of the highest dividend yields in the industry.
SVOL: Treat This Like A High-Yield Hedge Fund
The fund's large holdings in "fixed-income ETFs" and options mean it shouldn't be treated solely as a short VIX futures fund but rather as a hedge fund for income. Its fixed-income ETFs consist of Simplify's other funds that often have their own option overlays on top of their holdings. Distributions look to be sustainable given SVOL's balance sheets and ability to regrow NAV after each distribution.
SVOL: The Hedge Worked, I Maintain A Strong Buy
The Simplify Volatility Premium ETF aims for 15% annual returns through short VIX futures, bond collateral, and options spreads, showcasing strong active management. Despite a recent VIX spike, SVOL's risk management and hedging strategies worked as expected, ensuring quick recovery and minimal shareholder losses. SVOL's holdings, including various Simplify ETFs, add convexity and yield, but also introduce significant derivative-related risks that need careful monitoring.
Navigating A Historic VIX Spike With SVOL
SVOL typically shorts between 20% and 30% of its portfolio across the VIX futures term structure, greatly limiting downside risk compared to other products with more exposure. SVOL allocates 2% to 4% of its portfolio annually to mitigate VIX spikes, utilizing strategies such as purchasing call options on the VIX or implementing equity puts or put spreads for added protection. We believe that SVOL is a better-designed short VIX strategy, offering investors an alternative source of equity income with enhanced risk management.
