SVOL: Recent Sell-Off Highlights The Fund's Poor Construction

seekingalpha2024-08-06

Simple investments can be more successful than complicated ones, as overly complex investments may hide unacceptable risks.The Simplify Volatility Premium ETF offered total returns of 27.54% over the ...

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overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSVOL: Recent Sell-Off Highlights The Fund's Poor Construction\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-08-06 20:27 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4710789-svol-recent-sell-off-highlights-the-funds-poor-construction><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Simple investments can be more successful than complicated ones, as overly complex investments may hide unacceptable risks.The Simplify Volatility Premium ETF offered total returns of 27.54% over the ...</p>\n\n<a href=\"https://seekingalpha.com/article/4710789-svol-recent-sell-off-highlights-the-funds-poor-construction\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":null,"symbol_name":null,"start_time":0,"source_url":"https://seekingalpha.com/article/4710789-svol-recent-sell-off-highlights-the-funds-poor-construction","article_id":"2457820044","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1706231587/image_1706231587.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2457820044","pubTimestamp":1722947232,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Simple investments can be more successful than complicated ones, as overly complex investments may hide unacceptable risks.The Simplify Volatility Premium ETF offered total returns of 27.54% over the ","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{},"translate_title":"SVOL：最近的抛售凸显了该基金的糟糕结构","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"SVOL":1,"FDN":0.9,"TVIX":0.9,"VXX":0.9,"VIX":0.7,"VIXmain":0.6,"SVXY":0.6,"UVXY":0.6},"content_text":"Simple investments can be more successful than complicated ones, as overly complex investments may hide unacceptable risks.The Simplify Volatility Premium ETF offered total returns of 27.54% over the last 3 years, but recent performance and tax structure raise concerns.SVOL's strategy involves shorting the VIX and investing in government bonds, but consistent decline in net asset value and unfavorable taxes make it a sell.   Torsten Asmus Sometimes simple investments are more successful ones. While often more creative financial instruments can increase value for investors, an overly complicated investment may be hiding some of the risks that individuals may normally find unacceptable. Dividend investors have increasingly had a harder time finding regular and inflation-adjusted income with prices and rates at elevated levels. Over the last decade, a number of more nuanced covered call exchange-traded funds and other income-based investments have been developed. One income-based investment fund that recently came to market in May 2021 is the Simplify Volatility Premium ETF (NYSEARCA:SVOL). Data by YCharts SVOL has offered investors total returns of 27.54% over the last 3 years, while the S&P 500 has offered investors total returns of 26.91% during the same time frame. Today, I am initiating coverage of the Simplify Volatility Premium with a rating of a sell. The fund's strategy has led to a significant decline in the net asset value even in what has most been an ideal investing environment for this fund, and the current volatility increases highlight the unfavorable risk-reward balance of this investment. The tax structure of payments investors receive in this ETF is also poor. SVOl has $1.07 billion in assets under management, an expense ratio of 1.1%, and a forward yield of 16.92%. The fund has been able to pay out consistent and significant income since the fund's inception in the middle of 2021.   A Chart of SVOL's Payouts (stockanalysis.com) SVOL's strategy has changed since the ETF came to market, but the fund has consistently paid out between $.29 a share to $.33 a share per month since October 2021, even though some payments have been paid with existing capital, such as in September and October 2023. SVOL's current strategy is to short the VIX at .2x to .3x S&P 500 VIX futures. The ETF then uses these proceeds from sell options on the VIX to lever up and take a position in the fixed-income market to provide additional income. Most of the holdings of this ETF are government bonds. What the fund essentially does is invest 10 cents of every dollar in selling VIX futures, and the remaining 90 cents invested primarily in government bonds that provide additional yield. The fund also reserves the right to sell call options against the fixed-income holding to generate additional income.   A List of SVOL's Holdings as of 8/2/2024 (simplify.us) The fund uses an advanced options strategy to hedge this position, so investors do not have unlimited losses when VIX makes a significant move, as we are currently seeing. This fund is actively managed, so the expense ratio looks reasonable. The two main issues that SVOL has are the consistent decline in net asset value even in an ideal market environment, and the unfavorable taxes on the income the fund pays. While some investors may hold this ETF in a tax-deferred account, this fund's structure will be difficult for most investors. The distributions of this fund are taxed as ordinary income, and the return on capital is also subject to ordinary income tax rates as well. This is very different from most covered call funds, where usually nearly 60 percent of the distributions are taxed at the long-term capital gains rate.   A Chart of the VIX (Chicago Board of Options) The VIX has stayed in a relatively narrow range since this fund's inception date in May 2024 prior to the recent more significant rise we have seen this week. This is why investors should be concerned that even with a few significant spikes in the VIX over the last 3 years, this fund has still seen the net asset value decline by nearly 21%. The ETF has also sold-off nearly 11% in just the last week, highlighting the fact that the options hedging strategy the fund uses obviously does not fully protect investors to downside risks.  While SVOL performed decently in a more favorable investing environment over the last three years, this fund does not offer investors the right risk-reward balance. While there are some more aggressive investors who may find holding SVOL in a tax-deferred account appealing, most individuals seeking income and dividends should be able to find more appealing options with less risk.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-1","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":1,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.30.0","shortVersion":"4.30.0","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2457820044"}