The Universa Black Swan fund is an investment firm founded in 2007 by Mark Spitznagel which specialises in risk mitigation.
The fund was created in the heat of the Global Financial Crisis and aimed to capitalise on the immense market downturn.
Spitznagel runs his fund off the Black Swan theory, penned by Nicholas Taleb in his book ‘The Black Swan: The impact of the highly improbable’.
The book perfectly encapsulates the trading strategy of the fund: focus on the improbable and know no bounds when it comes to capitalising off it.
If you had just 3.3% of your assets in Universa and the balance in an S&P 500 tracker fund, you would have netted a 0.4% return in March despite the S&P falling more than 11%.
Universa relies on the improbable to happen, and whilst it is risky, the returns speak for themselves.
Spitznagel said in a letter to members of the fund “If the pandemic doesn’t pop this bubble then, of course, it will be something else that eventually accomplishes this,”.
Universa is not new to scoring phenomenal returns off the back of market downturns; in 2015 the fund netted over $1 billion in a single day, representing a 20% return at the time, this immense success was off the back of the 1000-point Dow plunge in August 2015.
Many investors in the sector do not agree with Universa’s trading model, speaking out about how Spitznagel is a ‘veteran’ at enduring losses for extended periods in anticipation of the next market crash.
In 2002, Malcolm Gladwell quoted him in his New Yorker profile of Nicholas Taleb, “It’s like you’re playing the piano for ten years and you still can’t play ‘Chopsticks,'” Spitznagel told Gladwell, “and the only thing you have to keep you going is the belief that one day you’ll wake up and play like Rachmaninoff.
When speaking about his vision for the future, Spitznagel commented on the even greater market downturns to come.
He informed his investors that the global economy was speeding toward a larger crash, ignited by trillions of dollars in stimulus measures, extremely low-interest rates, and an enormous increase of money into markets.
In a leaked letter obtained by Business Insider, Spitznagel pitches his fund as a method of enabling risk rather than eliminating it.
“Think of Universa as your safe haven, your shelter from the unpredictable storm,” he said in the letter.
“But it’s not like staying holed up safely indoors (quarantined, as it were) whenever dark clouds gather. It’s more like carrying an umbrella, allowing us to go about our business, rain or shine, no matter what financial storms loom.”
At least somewhat protected if the skies open, Universa’s investors can expose themselves to higher risk assets and “ride the market bubble,” Spitznagel added, “without the need for a crystal ball.”
Trade safe!
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.
