PFIX, which listed on Tuesday, May 11th, seeks to provide a hedge against a sharp increase in long-term interest rates. Using over-the-counter derivatives, typically only available to institutional investors, PFIX provides direct and transparent convex exposure to an upward shift in long-dated rates.
At launch, PFIX invests 50% of its NAV into a long-dated option on long-term interest rates. By carefully selecting option strike, time to expiry, and the underlying rate maturity, PFIX attempts to create a low-cost, powerful and highly convex position.
“Portfolios today are too often overexposed to interest rate risk and the impacts from a reemergence of inflation, but hedging portfolios against these risks has long been challenging as traditional hedges, like futures, come with large costs of carry, while more sophisticated approaches, like interest rate derivatives, have only been available to institutional investors,” said Harley Bassman, Managing Partner with Simplify. “With PFIX, investors now have a tool that can be used as an explicit hedge against rising rates for all the parts of a portfolio that tend to struggle in a rising rate environment, including high quality long-dated fixed income, real estate, and growth equities.”
SVOL, which begins trading today, is designed to capture the volatility premium stemming from imbalanced hedge demand while simultaneously buying call options on the VIX as a means of hedging against adverse spikes in equity market volatility. The fund invests in a short volatility strategy designed to generate substantial income while minimizing volatility drag. It then spends a modest budget on VIX call options that seek to mitigate the short volatility portfolio when the VIX spikes. It is the first-ever VIX income strategy with an option hedge.
“Investors searching for income in today’s market have to navigate the twin challenges of historically low bond yields and highly volatile equity markets. These market conditions do, however, make the volatility risk premium an interesting potential source of income; one made all the more appealing with the approach captured in SVOL which strives to reduce the risk of substantial tail events,” said Michael Green, CFA, Portfolio Manager & Chief Strategist with Simplify. “We’re very excited to be bringing this first-of-its-kind strategy to market and see SVOL as a key solution for investors looking for alternatives to the usual high yield approaches, diversifiers for traditional asset classes, and as a tactical vehicle for those times when volatility levels are most attractive.”
PFIX and SVOL join a Simplify ETF family that has quickly surpassed the $250 million asset mark since the launch of its initial offerings in late 2020, as advisors, family offices, institutions and the retail investor community have been drawn to the more scientific approach the firm has pioneered in combining equity index exposures with robust options overlays.
“We could not be more excited to be adding PFIX and SVOL to our fund family, and look forward to the conversations that our leadership team, with its unsurpassed background in options, portfolio construction, convexity, and more, will be having with advisors in the weeks and months to come,” added Paul Kim, CEO and Co-Founder of Simplify. “ETFs are a great democratizer and we’re thrilled to be making the sophisticated strategies underpinning both of these new funds available to the marketplace.”
ABOUT THE SIMPLIFY ASSET MANAGEMENT INC
Simplify Asset Management Inc. is a Registered Investment Adviser founded in 2020 to help advisors tackle the most pressing portfolio challenges with an innovative set of options-based strategies. By accounting for real-world investor needs and market behavior, along with the non-linear power of options, our strategies allow for the tailored portfolio outcomes for which clients are looking. For more information, visit www.simplify.us.
Investors should carefully consider the investment objectives, risks, charges and expenses of Exchange Traded Funds (ETFs) before investing. To obtain an ETF’s prospectus containing this and other important information, please call (855) 772-8488, or visit SimplifyETFs.com. Please read the prospectus carefully before you invest. An investment in the fund involves risk, including possible loss of principal. Past performance does not guarantee future results.
The fund’s investment objective is to seek capital appreciation. The funds are new and have a limited operating history.
The use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. These risks include (i) the risk that the counterparty to a derivative transaction may not fulfill its contractual obligations; (ii) risk of mispricing or improper valuation; and (iii) the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset, rate or index. Derivative prices are highly volatile and may fluctuate substantially during a short period of time. The use of leverage by the Fund, such as borrowing money to purchase securities or the use of options, will cause the Fund to incur additional expenses and magnify the Fund’s gains or losses. The earnings and prospects of small and medium sized companies are more volatile than larger companies and may experience higher failure rates than larger companies. Small and medium sized companies normally have a lower trading volume than larger companies, which may tend to make their market price fall more disproportionately than larger companies in response to selling pressures and may have limited markets, product lines, or financial resources and lack management experience.
The Fund invests in ETFs (Exchange-Traded Funds) and is therefore subject to the same risks as the underlying securities in which the ETF invests as well as entails higher expenses than if invested into the underlying ETF directly.
While the option overlay is intended to improve the Fund’s performance, there is no guarantee that it will do so. Utilizing an option overlay strategy involves the risk that as the buyer of a put or call option, the Fund risks losing the entire premium invested in the option if the Fund does not exercise the option. Also, securities and options traded in over-the-counter markets may trade less frequently and in limited volumes and thus exhibit more volatility and liquidity risk.
VIX: A real-time market index representing the market’s expectations for volatility over the coming 30 days. This is not an index you can invest in directly; one must invest in futures, options, or ETFs based on VIX to gain exposure to the index.
Simplify ETFs are distributed by Foreside Financial Services, LLC.
Chris Sullivan/Patrick Phalon