Amplify to list International BlackSwan ETF in next couple of weeks

Amplify BlackSwan ISWN ETF
Ticker: ISWN
Exchange: NYSE Arca
Expense ratio: 0.49%

Original Filing date: July 24, 2020

Effective date: December 17, 2020

CUSIP: 32108821
Adviser: Amplify Investments LLC.
Sub-Adviser: ARGI Investment Services, LLC and Toroso Investments, LLC.

Index: S-Network BlackSwan International Index (ISWNXT)

Investment Strategy Summary

Provide 70% of upside performance of MSCI EAFE index, with protection against "Black Swan" events where market drops substantially and suddenly.

Investment portfolio to mimic index:

• 90% in U.S. Treasuries of various maturities that together have a duration matching initial duration of the U.S. 10-Year Treasury Note.
• 10% in in-the-money June and December LEAP options on iShares MSCI EAFE ETF (EFA).

Portfolio Managers

Dan Cupkovic, CFP, Director of Investments at ARGI

Dr. Indu Chhachhi, Investment Committee Member and Researcher at ARGI

Matt Westfall, CFA, Portfolio Manager at ARGI

Charles A. Ragauss, CFA, Portfolio Manager at Toroso

Michael Venuto, Chief Investment Officer of Toroso

Prospectus is here.

MORE ETF HEARSAY

S000069679

 

Strategy in Detail

The Fund will invest at least 80% of its total assets in the securities that comprise the Index, which will primarily include U.S. Treasury securities and long-dated call options ("LEAP Options") on the iShares MSCI EAFE ETF ("EFA"). The Fund is not a money market fund. The Fund, using an indexing investment approach, attempts to replicate, before fees and expenses, the performance of the Index. The Fund's investment sub-advisers, ARGI Investment Services, LLC ("ARGI") and Toroso Investments, LLC ("Toroso," and with ARGI, the "Sub-Advisers"), manage the investment of the Fund's assets. The index provider is S-Network Global Indexes, Inc. ("S-Network" or the "Index Provider"). The Index Provider is not affiliated with the Fund, Amplify Investments LLC (the "Adviser") or either Sub-Adviser.

 

The Index is a rules-based, quantitative index that seeks to provide capital protection against the unpredictable, rare and highly disruptive events that have come to be referred to as "Black Swans." The Index's strategy is designed to allow for some participation in the investment gains experienced by EFA while providing the opportunity for a buffer against significant losses through the Index's target portfolio weighting of approximately 90% U.S. Treasury securities. The EFA tracks an index that measures the equity market performance across 21 developed markets outside of the U.S. and Canada and may include large or mid-capitalization companies.

 

The Index seeks to provide such returns by allocating approximately 10% of its index market capitalization to a portfolio of LEAP Options on EFA and approximately 90% of its index market capitalization in a portfolio of U.S. Treasury securities. The EFA LEAP Options provide the exposure to the MSCI EAFE Index. Due to the terms of these EFA LEAP Options (which are discussed in more detail below), these positions allow the equity portion of the Index to participate in approximately 70% of the upside experienced by EFA over a full market cycle. The U.S. Treasury securities portion of the portfolio is included to help mitigate against significant losses. By allocating approximately 90% of its index market capitalization to U.S. Treasury securities, the Index seeks to create a portfolio buffer that is positioned to preserve capital in the event of a "Black Swan" event. The Index is not designed to provide investment returns that correspond closely with the returns of the MSCI EAFE Index. The Fund is not an appropriate investment for investors who seek such returns.

 

The EFA LEAP Options portfolio is composed of in-the-money LEAP Options that, at the time of purchase, have expirations of at least one year and one day in the future and expire in either June or December, as applicable. The EFA LEAP Options purchased by the Fund are sold exclusively on the New York Stock Exchange and bought outright by the Fund. The EFA Leap Options are subject to customary brokerage costs in addition to the current market price for the Options (i.e. option premium). An "in-the-money" option contract is an option contract with a strike price that is below the current price of the underlying reference asset. For the EFA LEAP Options in which the Fund invests, the reference asset is EFA. The LEAP Options will generally have a delta of 70 at the time of purchase, meaning that for every $1.00 of movement in the share price of EFA, each LEAP Option will have a corresponding movement of $0.70. Therefore, while not subject to a return cap when EFA experiences gains, the Index generally only participates in approximately 70% of the gains experienced by EFA over a full market cycle. When EFA experiences losses, the EFA LEAP Options portfolio participates in approximately 70% of such losses experienced by EFA, but those losses are mitigated by the Index's approximately 90% position in U.S. Treasury securities.

 

The U.S. Treasury securities portfolio is composed of U.S. 2-, 3-, 5-, 7-, 10- and 30-Year Treasury securities that cumulatively provide a portfolio duration that matches the initial duration of the U.S. 10-Year Treasury Note. This duration was selected as the Index's target duration based upon the principle that the return on intermediate-term U.S. Treasury securities tends not to correlate with those of the U.S. equities markets. Duration is a measure of the expected price volatility of a debt security as a result of changes in market rates of interest, based on, among other factors, the weighted average timing of the debt security's expected principal and interest payments. In general, duration represents the expected percentage change in the value of a security for an immediate 1% change in interest rates. For example, the price of a security with a duration of 10 years would be expected to drop by approximately 10% in response to a 1% increase in interest rates.

 

The Index reconstitutes and rebalances every June and December. At each June reconstitution, the Index liquidates its existing June LEAP Options and purchases LEAP Options that expire the following June. The December LEAP Option positions will remain unchanged at each June reconstitution. At each December reconstitution, the Index liquidates its existing December LEAP Options and purchases LEAP Options that expire the following December. The June LEAP Options positions will remain unchanged at each December reconstitution. So as to maintain the desired allocation of the portfolio, net gains or losses derived from the reconstitutions of the LEAP Options positions are added to or subtracted from the U.S. Treasury securities portfolio at each reconstitution. The Index also rebalances the U.S. Treasury securities portfolio any time the portfolio's target duration deviates by more than 0.5 years. For more information regarding the Index methodology, please see the section entitled "Additional Information About the Fund's Strategies and Risks."

 

The Fund is classified as "non-diversified" under the Investment Company Act of 1940, as amended (the "1940 Act"). To the extent the Index concentrates (i.e., holds 25% or more of its total assets) in the securities of a particular industry or group of industries, the Fund will concentrate its investments to approximately the same extent. As of the date of the Prospectus, the Fund has significant exposure to companies in the financials sector, and companies based in Japan.