Today in Wall Street irony comes the news that a fund set up to protect investors from so-called black swan events has just been hammered by … well, by a type of market “swan” that even it didn’t predict. A pink swan? An orange swan? A piebald swan? You make the call.
The fund in question is the Amplify BlackSwan Growth & Treasury Core exchange-traded fund
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It is supposed to protect you from U.S. stock market volatility, but instead has plunged almost 25% from its peak in late 2021. The fund, with $240 million in assets, has now underperformed a basic balanced portfolio made up of 60% U.S. stocks and 40% U.S. bonds over one year, over three years and since its November 2018 launch. The reason? The 2022 rout in the bond market and the simultaneous plunge in stocks.
“ ‘Last year was a three-standard-deviation event in terms of bonds and equity.’”
— Bill Belden, president of Amplify
“Last year was a three-standard-deviation event in terms of bonds and equity,” says Bill Belden, president of the fund company Amplify. “What has happened is bonds have performed terribly, and certainly over the last year and a half, equities have performed poorly as well.” Going back to the 1920s, he says, there are just four other years in which the fund’s strategy would have ended up losing you money: 1931, 1941, 1969 and 2018. I don’t mean to give Belden or the fund company a hard time. They are doing what they said they would do, and the strategy is not completely crazy. During the March 2020 COVID-19 crash, the fund did just what investors hoped: It fell less than 10%, while the S&P 500
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plunged by a third and even the balanced portfolio fell at one point by nearly a quarter. But the fund’s more recent woes do show how impossible it is to protect yourself against the sudden arrival of swans of a different color. The term “black swan” was coined in the 2000s by finance professor and author Nassim Nicholas Taleb, who wrote a book with that as its title. The term refers to unexpected and supposedly unprecedented events that upend your expectations, like when Europeans fi …