A BlackSwan event is one that is rare, unpredictable, impactful and difficult to attribute to reason, even after its occurrence.
The S-Network BlackSwan Core Index is designed to potentially protect capital against BlackSwan events.
With the majority of assets in historically low-volatility Treasuries, remaining assets are used to purchase “in-the-money” calls (options with a strike price below the market price on the S&P 500). The goal is to achieve capital appreciation above inflation while minimizing volatility as compared to standard asset-allocated investments.
Key defining factors include:
The index allocates 90% to US Treasuries in order to minimize volatility, while seeking higher returns by using the remaining portion to purchase long-dated call options (LEAPs) on the S&P 500.
The index liquidates and replaces half of its options each June and December, while rebalancing a barbell basket of treasuries as needed to maintain a 10-year duration. The index entered live production on October 17, 2018.
The index depends on a clearly defined rules-based methodology, which is overseen by an impartial Index Committee. Little discretion is exercised in compiling the Index, and the pre-defined screening protocol should ensure a consistent, transparent and arms-length compilation process.