The Simplify Volatility Premium ETF (SVOL) has become one of the most popular funds among income investors this year. It has done modestly well since its inception, and has one of the highest dividend yields in the industry.
The SVOL stock has risen from a low of $14.7 in June 2021 to a record high of $22.17, meaning that a $10,000 investment at the time would now be worth over $14,965. With dividends included, the funds would be worth over $16,000.
What is the Simplify Volatility Premium ETF?
The Simplify Volatility Premium ETF is one of the many active funds that were launched in the last five years. It is a fairly expensive fund with an expense ratio of 1.16%, meaning that a $10,000 will attract a $116 in annual fee. In contrast, investing the same amount in the Vanguard S&P 500 index (VOO) will cost just $3.
Still, the fund has attracted substantial assets, with the total assets jumping to over $1.25 billion. This growth has been because of its high dividend yield of 16.6%, which is much higher than other boomer candy ETFs like the JPMorgan Equity Premium (JEPI) and JPMorgan Nasdaq Premium Equity (JEPQ) fund.
Its goal is to make about one-fifth to three-tenths the inverse performance of the Cboe Volatility Index. In other words, it shorts the VIX index and hopes that it continues to retreat over time. While this is the case, as I will demonstrate below, only 20% of its portfolio are VIX shorts.
As an inverse fund, SVOL the fund moves in the opposite direction of the VIX index. For example, on Wednesday, the VIX index dropped by 2.6% while the SVOL ETF rose by 0.10%.
For starters, the VIX is an index that represents the market’s expectation of equity volatility in 30 days. In most cases, the index moves inversely with the broader market.
The SVOL ETF’s components
The SVOL ETF is made up of several key assets. The biggest component is the Simplify Aggregate Bond, which accounts for 8.94% of the fund. It is followed by the Simplify Treasury, Simplify High Yield, Simplify Mortgage Backed Securities ETF, and the National Muni Fund. These assets are often seen as cash or cash-like instruments.
The other notable parts of the fund are the long-dated VIX call options, which account for about 20% of the fund. At press time, it has VIX calls on January, February, March, April, May, and December 2025 calls.
The options overlay approach helps it to hedge against volatility in the market. Its prospectus says:
“The option overlay strategy consists of purchasing exchange-traded and over-the-counter (“OTC”) put and call options on the Index or Index-linked exchange traded products. It is a is a strategic, persistent exposure meant to hedge against market moves and to add convexity to the Fund.”
In simpler terms, the SVOL ETF first aims to harvest VIX roll yield by selling VIX futures. It then invests a majority of its assets in income-producing securities like those we have covered above. Finally, as an active fund, the manager manages risks, which can be substantial when dealing with the VIX.
Is the SVOL ETF a good investment
The Simplify Volatility Premium ETF is significantly different from other passive ETFS like the Vanguard S&P 500 (VOO) and the Invesco QQQ ETF (QQQ), which provide a broader exposure to the US equities market.
Its main difference is that it does not track American equities. Instead, it is a volatility fund that aims to generate consistent returns to its investors. Therefore, most investors buy the SVOL fund to complement their investments in other passive funds, hedge against risk, and generate returns.
The SVOL ETF has done well since its inception in the last four years. Data shows that its total return, which is made up of the stock price and its dividends has been 31% in the last three years. The SPDR S&P 500 (SPY) and Vanguard S&P 500 (VOO) have returned 38.75% and 39%, respectively. Invesco QQQ has returned 40% in the same period.
The last 12 months have been tough for the fund as its total returns stood at 13.13% while the other funds have returned over 30%.
As I have written before, one of the best ways to Sleep Well at Night (SWAN) is to invest in these passive funds that have demonstrated strong growth over the years. As many publications have written, many high-yielding active funds rarely beat their passive competitors.
The other risk for investing in the SVOL ETF is that it seems like it has formed a triple-top chart pattern. In most periods, this is one of the most popular bearish patterns in the market, meaning that a bearish breakout is possible.
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