In this episode of Strategic Investor Radio, host Charley Wright interviews Randy Swan of the eponymous Swan Global Investments. Randy is the founder and president of the Durango, Colorado-based firm, as well as a portfolio manager. He started the company in 1997 after beginning his career as a CPA, but his interest in investing runs much deeper: Randy says he has been an “avid investor” since he was 14 years old, and his experience through the market’s ups and downs – including the 1987 crash – helped him develop the risk-mitigation strategies he implements at Swan Global Investments.
Swan strategies start with an underlying asset, such as the S&P 500. Around 90% of each strategy’s capital is invested in ETFs to gain long exposure to the underlying asset, while the remaining 10% is used to buy insurance through the options market. Swan prefers long-dated put options for insurance, and the strategy also calls for selling short-dated, quicker decaying options to generate income and offset the expense of the long puts. Randy says the strategy more than pays for itself over a full market cycle, and his S&P 500 strategy has outperformed the underlying index by around 200 basis points per year, while the firm’s gold strategy outperformed the GLD ETF by 6% per year in each of the past three years.
The GLD strategy isn’t currently available in mutual fund format, but Swan does have a total of four funds, including the flagship S&P 500 strategy, as well as strategies focusing on emerging markets, developed foreign markets, and U.S. small cap stocks. Swan’s funds and their A-class tickers are listed below:
One of the unique features of Swan’s strategies is that they turn massive selloffs into “re-hedging” opportunities. Randy says that if emerging markets sold off by 50%, he’d probably lose some money – but the re-hedging process that followed would position Swan for future gains. To put it in simple terms, Randy says a big selloff would allow strategists to sell their expensive insurance policies, buy cheaper insurance policies, and use the differential to invest in more shares.