In times of economic uncertainty, investors search for a fallback-strategy enabling them to securely diversify their portfolios. Investors’ requirements are demanding as their investments should both withstand tumultuous markets and, at the same time, maintain an adequate return. New York-based Asset Manager Direxion tackles this compromise by issuing a Swiss-army knife index strategy, which utilizes three lowcorrelating asset classes covering utility stocks, U.S. Treasury bonds, and commodities, to achieve an optimal asset allocation depending on market movements. The resulting Direxion Flight to Safety ETF (NYSE: FLYT) demonstrates Solactive’s expertise in Complex Index creation.
To create the Solactive Flight to Safety Index, the German index provider combines the Solactive US Large & Mid Cap Utilities Index, the Solactive US 20+ Year Treasury Bond Index, and the LBMA Gold Price PM in order to forge a defensive multi-asset index designed to weather economic downturns. The strategy takes into account gold’s longstanding tradition of stability or an increase in value during negative market sentiments. Similar behavior has been observed for U.S. listed large-capitalization utility stocks, rendering these shares a matching counterpart for the precious commodity. Additionally, the strategy is backed by U.S. Treasury bonds with remaining maturities of greater than 20 years enjoying the deep trust and full credit of the U.S. government. The low correlation of the components can deliver an added diversification to investors’ portfolios. Another feature of the index is its rebalancing method, which is based on the volatility contribution of each respective index component. The methodology takes into account each component’s trailing 5-year volatility and weights the least volatile component most heavily in the strategy. A capping at a share of 22.50% of the LBMA Gold Price PM prevents an overweight of the commodity. Any excess will be proportionally distributed to the U.S. Large and Mid-Cap Utilities and U.S. treasury bonds allocations.
“The Solactive Flight to Safety Indexis an appropriate tool for defensive investors seeking to support their portfolio against economic disturbance,” comments Timo Pfeiffer, Chief Markets Officer at Solactive. “This strategy could Fabian Colin Head of Sales +49 (69) 719 160-220 email@example.com www.solactive.com Phil Wiedbrauck PR & Communications +49 (69) 719 160-311 firstname.lastname@example.org Solactive AG German Index Engineering Platz der Einheit 1 60327 Frankfurt am Main Germany Steffen Scheuble CEO +49 (69) 719 160-20 email@example.com become especially handy in 2020, as both the macroeconomic outlook is deteriorating and asset prices across all asset classes are already elevated.” Dave Mazza, Managing Director and Head of Product at Direxion comments: “Collaborating with Solactive on this index enables us to deliver a strategy that helps investors gain potential protection while remaining invested in the markets, in a low-cost way that many liquid alternative strategies have struggled to deliver.”