17.06.2024 Issuer Call Redemption Notice

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Sandeep Rao


SVLT: Tech Stock Performance Plus Volatility Play

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While the broad market did advance by strides over the past year, market breadth, i.e. the volume of distinct investment choices made by market participants across the equity universe, has been shrinking. This has led to the overall volatility of the market – as represented by the iPath Series B S&P 500 VIX Short-Term Futures ETN (ticker: VXX) which tracks the VIX index (also known as the “fear gauge”) – plummeting while overall market valuations trended upwards specifically in the tech-heavy Nasdaq-100, as represented by the Invesco QQQ Trust ETF (ticker: QQQ) which tracks said index.

Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

Source: Leverage Shares analysis

This difference in trajectory pattern makes an interesting case for a strategy which buttresses the tech market with the volatility index: if the VIX continues to fall, top-of-the-line tech equities will continue to attract investor interest against most other equity classes. If even tech equities start to fall owing to recessionary pressures on spending or an increasing number of investors switching to cash until recessionary pressures drop, the VIX will still continue to dip.

This portfolio strategy is the crux of the use case for the Short Volatility Long Tech ETP (ticker: SVLT), an Exchange-Traded Product (or “ETP”) that’s very much the product of its time. The ETP balances its total exposure to QQQ with a short (or “inverse”) exposure to VXX with a quarterly rebalancing formula such that it’s total exposure will be the higher of either 15% or the percentage exposure to volatility through the VXX on the last Valuation Date of the immediately preceding calendar quarter.

Strictly speaking, ETPs such as SVLT (as indeed are most leveraged and inverse ETPs) are tactical instruments ideal for professional investors acclimated to convictions in trajectories. Nonetheless, in the course of the present year till the 17th of May, SVLT delivers a solid 6.3% outperformance against the tech-heavy index.

Source: Leverage Shares analysis

However, it is important to note that SVLT is designed to be of tactical utility. Over the course of the past year in terms of full calendar months, SVLT outperformed QQQ in 5 months out of 12.

Source: Leverage Shares analysis

Depending on how tactical the investor is, the time frame for investments can even be reduced to week-long investment horizons. Over the past 50 full weeks, SVLT outperforms QQQ 30 times, i.e. 60% of all cases.

Source: Leverage Shares analysis

Cumulatively, across the weeks of outperformance, SVLT delivers 55% in returns while QQQ delivered half that at 27%.

Given current macroeconomic pressures, it’s likely that market breadth issues will continue to find no meaningful resolution, which means that current trends involving the VIX as well as QQQ are likely to continue in spurts and bursts. In such an event, SVLT is bound to provide greater returns versus the market in durations shorter than a week as well. While there is some argument for SVLT to be included in the portfolio of the standard “buy and hold” strategies of professional investors, where it really shines (and finds persistent favour) is in the portfolios of seasoned investors pursuing advanced “tactical” strategies.

All in all, it’s an interesting and powerful product for the professional investor, with an increasing number using it at opportune estimated moments. It’s worth a look for investors of all strategy types and key information on holdings, et al can be found here.

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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