Last month’s stock market volatility rattled investors and likely prompted lots of serious thought about downside protection. In what perhaps is a case of fortuitous timing, Amplify ETFs on Tuesday launched the Amplify BlackSwan Growth & Treasury Core ETF (SWAN) that tracks an index designed to provide upside exposure to the S&P 500 Index while offering a bond-heavy portfolio to protect investors against sharp equity downturns.

Roughly 90 percent of the fund will allocate to U.S. Treasuries ranging from two- to 30-year durations, which cumulatively provide a portfolio duration akin to 10-year Treasury notes. Duration measures a bond’s sensitivity to changes in interest rates, and the 10-year note was chosen on the premise that returns on intermediate-term U.S. Treasury securities tend to have low correlation with U.S. equities.

The remaining 10 percent or so of the underlying S-Network BlackSwan Core Total Return Index will comprise LEAP options on the SPDR S&P 500 ETF (SPY) in the form of in-the-money calls, which are options contracts with a strike price below the current price of the targeted asset. The options provide leveraged exposure to equities, and will generally have a delta of 70 at the time of purchase, meaning that each LEAP option will have a corresponding movement of 70 cents for every $1.00 of movement in the share price of SPY. In other words, the fund strives to capture 70 percent of the upside experienced by the SPY fund over a full market cycle.

The index reconstitutes and rebalances every June and December. The fund’s expense ratio is 0.49 percent.

“The strategy is a play on the correlation between the S&P 500 and U.S. Treasuries, with the goal of producing equity-like returns but with significant downside protection because Treasuries have generally been a good place to be during times of market distress,” says Christian Magoon, CEO of Amplify ETFs. “It’s certainly more conservative than a low-volatility ETF because of the money devoted to Treasuries, but you may get returns somewhat equivalent to a low-volatility fund."

He adds that the SWAN fund has an income kicker with an expected yield of 2 percent to 2.25 percent.

The fund’s underlying strategy was developed by ARGI Investment Services LLC, a Louisville, Ky.-based RIA with roughly $1.8 billion in assets under management. ARGI says it developed its Black Swan portfolio to protect capital against rare and unpredictable Black Swan events that can produce destructive market downturns.

“Essentially, it’s being used in core equity portfolios for clients who are nearing retirement or are in retirement and still need equity exposure but can’t afford to get whacked by a 15 percent to 30 percent market drawdown,” Magoon says.

He considers SWAN to be an all-weather product that can complement the core exposure in investor portfolios. And he posits it could comprise 5 percent to 15 percent of an investment portfolio, depending on an individual’s needs.