SVOL - Breaking down this 16% Yielding ETF with Eric McArdle from Simplify ETFs

[@armchairincomechannel]

Excellent interview! The breakdown of how they prepared for, and navigated through, the VIX spike was very informative. Also good to know about the effect of rate cuts on the TBill income, makes sense.

[@wealthadventures]

Thanks! They has altered the components of this over the last 3 years. It will be interesting to see if they make changes if interest rates continue to come down.

[@alphaGambit]

hasn’t Larry Kim apparently said something different to you (interview ~7months ago) than Eric did regarding RoC/distributions? If I misunderstood I would appreciate some clarification 😊 thanks

[@RaadYacu]

This is the reason why I buy this ETF, Eric humbles everyone with his VIX Futures Curve

[@wealthadventures]

Ha! So true.

[@michaelstephens6775]

I have owned SVOL for about a year maybe more. Good interview. Thanks. I consider it part of my equity income allocation

[@wealthadventures]

Thanks. Same here. Small portion of my alternatives.

[@ClintonSiegel]

Super helpful. Thank you very much. I am an owner and now have an even greater understanding of the risks, opportunities and mechanics of the fund. The Airplane clip was hilarious.

[@wealthadventures]

Thanks!

[@sdrs95a]

Great questions! SVOL one of my largest holdings. Manager also had great answers!

[@wealthadventures]

Thanks!

[@AnesthesiaDan]

An excellent and informative interview… SVOL is a brilliant product (which I own). Innovative ETFs which firms such as Simplify, NEOS, Alpha Architects, and Calamos have brought to the market provide turnkey accessibility to novel strategies for the retail investor. Bravo!

[@wealthadventures]

Thanks! Appreciate you watching.

[@michaelhaidee]

Owner of SVOL. Great product.

[@Moguiman]

Great interview. I didn't even notice the event you discussed! Glad it corrected so quickly.

[@wealthadventures]

That is awesome! 😂 And it really is how we should be investing. Looking at our accounts every day usually leads to bad decisions.

[@finwest]

@@wealthadventures Oh my gosh, NO! My best decisions are made when I'm tuned into the markets, which is everyday. Using Aug 5 as an example, the VIX spike was a huge gift; I was able to dump my UVXY that day before it retraced quite rapidly. I also made 15 buy trades from my dividend portfolio's watch-list, capturing some great securities that were on sale. I always tell newbies if you're not passionate about finance and the marketplace, then don't expect it to yield awesome results.

[@whipless9668]

I love the movie references: Rex Won Do, Airplane, etc. Good stuff!

[@peterholmes2089]

Thanks for asking him about what would happen if the VIX would stay high for a longer period. Unfortunately, it was not clear to me from his response what the outcome would be for the fund NAV in such a scenario. This is still my biggest concern with this fund.

[@alphaGambit]

I think quite clear they cannot "shield" the fund entirely from extended VIX volatility periods (like 2022, it will likely go down...question is how much, as in principle now they are somewhat also a "bond fund"....)

[@wealthadventures]

It would hit the fund for sure but they should be able to see some gains as the VIX reverts as well. It could be a rocky road! But might offer some interesting entry points.

[@SummitMan165]

Very good interview ! I liked the explanations around the VIX spike and it made me confident SVOL is a good fund for long term all conditions income. I have a small position too in it, confident to add more on low prices

[@wealthadventures]

Thanks!

[@joinjen3854]

What is a " low price" to you?

[@SummitMan165]

@@joinjen3854 don’t really know but when it catch a dip, can be good to buy some ?

[@mikelalor424]

I own it and it represents about 9% of my portfolio.

[@Mark-Rain]

Major dumb.

[@PALANTIR_3030]

Great 👍🏻 interview, thank you 😊

[@wealthadventures]

Glad you enjoyed it!

[@Steverino70]

great interview!

[@wealthadventures]

Thanks!

[@g.a.7527]

I have SVOL as 1.8% of my portfolio currently. I keep it as a fixed $ amount, and the distributions minus what is needed to offset any nav drop are used to buy SCHD.

[@Mark-Rain]

Take a math class.

[@mrallan8063]

Nice interview. 😀

[@wealthadventures]

Thank you! 😃

[@ttcc5273]

Cotango mentioned: ✅ Backwardation explained: ✅ Ted Striker reference: ✅

[@DividendDork]

😂

[@likeicare300]

Great deeo dive, looking forward to BUCK interview also

[@wealthadventures]

Thanks!

[@chipnorris2504]

Great stuff as always Dave.

[@wealthadventures]

Thanks Chip!

[@brendanquinn6894]

Good ole Eric. He does a wonderful job doesn't he ? Which episode of Airplane was he in ?

[@saustinredsox]

Hey Dave, LOVE the video and one of my favorite movies of all time! Nice to have Eric on ..... but Shailesh Gupta is the SVOL founder who grew it to 1Billion in a few years. Is he still there? Wondering as the focus and structure of the fund has changed recently. Also, Shalesh came out with this fund when interest rates were VERY low and dividends were higher. Any ideas? Best regards.

[@wealthadventures]

Shailesh is still the portfolio manager for SVOL and some of the other products used in SVOL (like AGGH).

[@saustinredsox]

@wealthadventures Thanks, Dave, it's not what their website says anymore as another name is on the svol page. Either way, it's depressing to have 4 other simplify products added to this fund perform so poorly on Friday when the market was going through the roof. Need to learn from your wisdom and reduce my SVOL position.

[@davidngai6264]

Thank you for the timely interview, I was recently introduced to your channel through your interview with Armchair investor and your interviews with the fund managers are invaluable. You asked about taxes but Simplify website contradicts. Starting Sept 2023 under SVOL distribution history on their website most of their distributions are classified as ROC (return of capital), how can any of this be classified as 'ordinary income"? They should clarify their position and make sure their supporting documents align. I see the same distribution classification for BUCK where most of their distributions are classified as ROC, is this is also incorrrect. Tax consequences is an important consideration, can they clarify their stand?

[@wealthadventures]

Hi. Those posted numbers are not official and I often find them incorrect. It is not just Simplify either. I find these to typically be incorrect versus what finally gets reported at the end of the year. I'm checking my 2023 tax docs... It looks like the majority is ordinary income but there were 2 in late 2023 that I'm still trying to find how they were reported.

[@davidngai6264]

@@wealthadventures Appreciate the reply would be very interested in what more you find. Since you're also looking at BUCK look at the historical distributions it's mostly ROC surprising for a T bill fund. Btw Sept shows its mostly income as of his writing but in my experience they will update later to include ROC.

[@jmcole56]

Thanks again Dave! I have owned this for the CONSITANT income of the dividend. It sounds like if interest rates keep dropping as everyone is expecting over the next couple of years, this fund will keep dropping the dividend. Did you have a chance to bring this up with him?

[@wealthadventures]

I did not ask him that directly. I could see an impact to the overall yield if interest rates continue to fall but I would not expect it to be dramatic.

[@MrSimonious]

I own this but am concerned by the drop in NAV and drop in dividend over time. Keep up the good work Dave, youve developed a great channel!

[@DividendDork]

Great video Dave, and very timely! I’m glad you clarified the tax treatment. I thought I had seen some distributions declared as ROC with SVOL and just assumed it was all that way. My bad. Not thrilled about the dividend cut, it’s the second one in the last 15 months. I’m thinking about selling frankly.

[@wealthadventures]

It still has a nice total return since inception. I think it is best in a tax deferred account because of that tax treatment.

[@finwest]

My confidence in the management of SVOL dropped dramatically after Eric's comments! He said the product is hedged with "calls there for that reason." There was a "catastrophic event," as he stated, with the VIX up 190%, but none of the calls were closed?? The market gave the SVOL hedge a gift! Half of the calls should have been closed that day, and seeing it was a one-time event, the other half closed the next day. This is a rookie trader mistake-to ride your position profitably only to give it all back. We all know the VIX is a mean-reverting index, so of course that spike was short-lived. He also stated the fund is always hedged; well, if not even a portion of the calls were closed this time, it seems doubtful they'll be closed the next time. As a shareholder, can I vote for a change in management??

[@wealthadventures]

It is mean reverting but I look at the calls as insurance. If the VIX remains elevated, or goes higher for a longer period, and starts to impact the futures curve, they will want those calls in place. It sounds like they were close to monetizing some of them. I have bought puts that have become nicely profitable but I did not execute for a similar reason - The whole "what if" scenario.

[@finwest]

@@wealthadventures I completely agree that the calls act as insurance, and it's good to have insurance. However, I'll compare SVOL management's use of that insurance to health insurance: there was a 'catastrophic event' (in Eric's words), but they didn't file a claim? That's what insurance is for. The August 5 spike easily warranted a claim. If not then, with VIX up 190%, is management waiting for 250% or 300%? Looking at past history, it's clear that VIX spikes-though rare-are indeed just spikes, and VIX doesn't stay elevated. I still hold the view that their management plan failed and needs some improvement. Thanks for reading!

[@nancymarie7733]

So can we expect a drop in the dividend with each rate decrease from the Fed?

[@GregF-k7w]

Yea need more information on the dividend cut. Feels like another one is around the corner

[@nancymarie7733]

@@GregF-k7w agreed

[@GregF-k7w]

@@nancymarie7733 tired of these paid KZbinrs

[@wealthadventures]

A large portion of the fund is held in T-bills. When we have interest rate cuts, that will directly impact the income of the fund. Out of the 15-16% distributed, I would guess 3-4% comes from T-bills.

[@GregF-k7w]

The div cut is disappointing. What would make them raise the dividend?

[@wealthadventures]

Fed rate hikes.

[@GregF-k7w]

⁠@@wealthadventurespeople that invest in SVOL do not want them investing in treasury’s. Why wouldn’t they replace short term treasury’s with something like BUCK? Lmk

[@jeancarloferreira9770]

I dont understand how svol was paying .32 cents before the fed even started raising interest rates. So how come when rates started going up the distributions didnt go up? They have only been reducing from .32 to now .28 And the fed is going to continue reducing rates so svol is going to keep paying less pretty soon here.

[@TonyCox1351]

The fed is going to drop another 1% or maybe 2% at the absolute most, so yes it’s possible that SVOL drops to 14% or 13%. I don’t think that’s such a crazy bad yield.

[@wealthadventures]

It is driven by volatility and interest rates. When the futures curve is flat it is also hard to harvest volatility. It would be interesting to look at the futures curve from 2022 vs 2024.

[@MartinD9999]

@jeancarloferreira9770 Reminds me of gas prices: When turmoil in the Middle East are coming, prices rise. When turmoil is no longer an issue, gas prices remain high until “they make their way down to the consumer” 🤨

[@TheComedyChannel-oo5lk]

It scares me, the thought of how much SVOL will drop if there is a market crash, which sooner or later will happen. It dropped by 10% in august, while the S&P dropped by 5%. If the S&P drops by 30% (which is very possible) will SVOL drop by 60%? If so, it will wipe out all the dividends of the last 5 years!

[@TonyCox1351]

SVOL did not drop in August. On Aug 1 it was at 21.97 and on Aug 30 it was at 22.41 so it actually went up in August, unless you panic sold in the middle of the month.

[@wealthadventures]

A market crash will hurt the fund but performance is driven by the VIX. As they roll the futures they can also get the benefit of the VIX being elevated. It could play out in many ways with this fund. For example, I could see a SPX correction where SPX does not recover but as the VIX declines you get recovery within SVOL. Just my opinion!

[@RAri-rc3to]

@TonyCox1351 It did go down to $19.41. If you were asleep you probably didn’t catch that. It did recover mostly by the end of the month. But what if you had a stop loss in place?

[@joinjen3854]

​@@RAri-rc3tothen you sold and could buy back in.

[@gmv0553]

As a long term SVOL investor I am disappointed with their distribution cut! That has been the second one since I invested in the fund. I will evaluate it and possibly move my money elsewhere.

[@alphaGambit]

there is no complete free lunch in investing. SVOL does not manage to generate all the income from trading VIX futures with only the 25% VIX exposure they claim. That is also part of the reason it manages to keep the price relatively stable (avoiding major NAV erosion during VIX spikes like other funds). To complement the income they count also on bond-related assets (as large part of their holdings show). It is quite clear as rates will go down, the bond-related income will also have to go down, which means SVOL distrbution will likely go down still more. In the end it is a trade off about the volatility of the principal and the level of the distribution, even in "good" times when the market in general goes up....

[@Nicogambino2]

​@@alphaGambitNVDY and cony is free lunch .already got my ROI back

[@wealthadventures]

With the cut it still sits around 15%. Pretty darn good.

[@striperkid]

I have a small position in my portfolio, definitely not enough to make a big impact either way.

[@tritosac]

The breakdown in the video & good management of Simplify is giving me more confidence to increase my position in SVOL. But I am curious about another ETF. This may be a bit off topic but I recently stumbled upon OVL. It tracks the S&P 500 & has very small difference in price return from VOO or SPY but offers more than double the roughly 1.30% yield with a yield of 2.86%. The strategy OVL uses is buying & selling put options to generate additional income. It's total return outperforms the S&P by 9%. Do you have any thoughts on this one? Thanks for your great videos.

[@wealthadventures]

Thanks! I will check out OVL. New one for me!

[@alphaGambit]

regarding distributions/taxes: it has NOT been true that most distributions are ordinary income, the table shown was for 2023, but for the past year a large chunk of distributions has been RoC…. and the statement that most VIX trading income fall under ordinary income is weird to me (if that’s the case, does that mean most recently returned RoC is an actual return of principal, therefore destructive to NAV?) other funds state there are accounting advantages on classifying future trading income as RoC and that is their explanation why high levels of RoC exist…. so someone is lying to us investors… which one is it??

[@RAri-rc3to]

You haven’t received your 1099 form for this year. You need to wait for the form before accusing people of lying.

[@alphaGambit]

@@RAri-rc3to sensitive you are..... it was not a particular accusation to a particular person. But the investment fund community must clarify once and for all issues related to the reporting of RoC... it just damages the industry credibility the way everyone says something different about it....

[@RAri-rc3to]

In my experience you only know until you receive year end forms. And even then you might get an amended form afterward.

[@alphaGambit]

​@@RAri-rc3to only thing I will try to say is, recently Larry Kim (also from Simplify) gave an interview at another channel about RoC classification in SVOL which seems to contradict what Eric says here...

[@wealthadventures]

I owned SVOL in 2023 for the last 1/2 of the year. Fidelity has the majority of the distributions labeled as ordinary non-qualified dividends (84%) and I'm still digging for the classification of the other 16%. I would assume ROC but still looking... I often find the 19A-1 notifications to be inaccurate for most funds so you really need to check tax statements after the year closes.

[@huiliu888]

It seems to me that SVOL is the opposite of UVXY.

[@finwest]

That VIX spike was a gift! I dumped all my UVXY that day. $$$

[@JohnDAlmonte]

I’m holding onto SVOL for now, but if there’s another drop in the distribution next year, I’m just gonna assume it’s a pattern, and I’m out. I’d really like to see it go back to .30 cents or even .32. I was planning to keep SVOL as a core holding for life, but not if it lowers it’s distribution by 6.5%-ish every year.

[@DividendDork]

Excellent points. SVOL has now cut the dividend twice in 15 mos. Seeking Alpha has them at -5.81 CAGR in the dividends year over year. And I’m not convinced that the .66 raise in the Expense Ratio is a nonissue. I’m strongly considering divesting my 1,700 shares this week.

[@harsharao3555]

What will happen TO SVOL when market tanks?

[@gmv0553]

Look at their results for 2022. It was a bear market.

[@guidogonsman3423]

@@gmv0553 But they have changed their portfolio. For example they have now a VIX 50 Call, 2022 it was a VIX 60 Call

[@TonyCox1351]

Literally this interview you just listened to is attempting answering that question

[@MartinD9999]

@harsharao3555 Did you watch the video?

[@rich8304]

So why does the div keep going down. 32 to 28 cents ?

[@torchy187]

It’s hard to find an index not destroying SVOL in 2024

[@wealthadventures]

It is still performing well but hard to keep up in a bull market with some indexes.

[@dangcjr]

Hi Dave, I Like the video, but there is one issue that I wish you would have asked about. In 2022, SVOL fell roughly 20% from the 2021 high, but it never recovered, in fact it pretty much has been flat ever since. This certainly is concerning as it indicates that during every bear market SVOL will go down and not recover therefore simply draw down overtime.

[@rubyoro0]

I was under the impression they have since adjusted the strategy?

[@wealthadventures]

I think it is important with any product to look at total return. SVOL is up about 36% over the last 3 years which includes that period back in 2021/2022.

[@dangcjr]

I agree that total return is important and of course I look at that but I think any income based investment I look at other factors as well. Like price drawdown and return drawdown as the price and distributions have declined without recovery with the rest of the market. While of course most traditional covered call etfs will take on 100% of the downside of the underlying asset, it will recover with the market. Yes that recovery is much slower as the upside is capped but still goes up. I guess I would as a current SVOL owner would like to hear from the fund manager if we can expect the same behavior in future market declines or as rubyoro0 suggests have they learned from that and adjusted for it to minimize that in the future.

[@fallenangel2123]

ZIVB is much better

[@TheComedyChannel-oo5lk]

ZIVB is much more volatile. It's down almost 20% over the last 2 months! I would rather have SVOL. I sleep better at night.

[@fallenangel2123]

@@TheComedyChannel-oo5lk When you wake up SVOL would be still doing nothing but ZIVB will be making new highs. Mark my words

[@TonyCox1351]

@@TheComedyChannel-oo5lkagreed, I’d much prefer steady returns. If I want volatility I’ll take MSTY or something

[@wealthadventures]

I prefer SVOL.

[@ivantsanov3650]

​@wealthadventures The risk/reward ratios are the same. The more popular svol gets, the more 'crowded' this particular segment of the futures curve will get and more difficult for them to sell futures - potential risk to run out of buyers (liquidity problem). VIXM and VXZ are buyers of the futures ZIVB is selling (ZIVB doesn't have this problem) .

[@ivantsanov3650]

You leaked his ass

[@Asstronauts93]

that's the least irish pronunciation of that name that i've ever heard

[@wealthadventures]

True.😂

[@jgerman5544]

12.3% NAV erosion since it's inception.

[@Mark-Rain]

SVOL is one sorry ass ETF these last 2 weeks. QQQ up 17%YTD. SVOL down 4%, FAIL....contango!

[@wealthadventures]

The VIX has climbed a bit the last few weeks. That will have an impact.

[@Mark-Rain]

@@wealthadventures The other reason failure is the dividend was cut, cause the fund invests in short term treasures.

[@HerschelSarnoff]

Lame explanation for large fees