Stocks sank in early trading on concerns that the Federal Reserve could be gearing up for its third consecutive 0.75% rate hike at its upcoming policy meeting. Wall Street had been hoping for smaller increases starting in September but now sees an 86% chance of a 75 basis point hike.
“With equities back to June lows and the rates path reset higher, more inflation easing along with decisive EU government intervention to tackle the energy crisis could prompt another bear squeeze,” Emmanuel Cau of Barclays said in a note. “Big picture, we think stocks remain in a tough spot given a poor growth-policy trade-off.”
Many on Wall Street believe markets will likely remain volatile in the coming months as investor sentiment fluctuates between hopes of economic growth and recession fears. Today we’ll highlight an investment that provides large cap exposure with a twist. It also allows investors to benefit from extreme shifts in market sentiment.
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One of the first ETFs to launch from Simplify, The Simplify US Equity PLUS Downside Convexity ETF (SPD) seeks to provide capital appreciation by offering US large cap exposure while aiming to boost performance during extreme market moves down via a systematic options overlay. The actively managed fund’s core holding gives investors low-cost, index-based exposure to US large caps. A modest option overlay budget is then deployed into a series of options positions that help create downside convexity in the fund.
Under normal circumstances, it invests at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities of US companies, primarily by purchasing ETFs. The downside convexity option overlay consists of purchasing exchange-traded and over-the-counter put options on the S&P 500 Index or an S&P 500 Index ETF.
The option strategy is designed to provide downside protection without capping any upside participation; in other words, it creates downside convexity in the fund. The specific put option contracts are selected strategically based on the adviser’s evaluation of relative value, strike price, and maturity. Investors should anticipate a non-linear relationship between the fund and market returns.
SPD is useful as a short-term tool and also as a longer-term portfolio component. Its performance YTD has been similar to the S&P 500. The fund is cheap relative to peers, with an expense ratio of just 0.28%.
Where to invest $1,000 right now...
Before you consider buying SPD, you'll want to see this.
Investing legend, Keith Kohl just revealed his #1 stock for 2022...
And it's not SPD.
Jeff Bezos, Peter Thiel, and the Rockefellers are betting a colossal nine figures on this tiny company that trades publicly for $5.
Keith say’s he thinks investors will be able to turn a small $50 stake into $150,000.
Find that to be extraordinary?
But you have to act now, because a catalyst coming in a few weeks is set to take this company mainstream... And by then, it could be too late.
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