On Tuesday, Simplify Asset Management unveiled the next addition to its bond ETF library: the Simplify National Muni Bond ETF (NMB).
Primarily, NMB seeks to provide income for its investors, and has a net expense ratio of 0.52%. The actively managed fund seeks capital appreciation as a secondary objective.
“Rather than simply allowing muni investors to clip coupons, NMB is built to combine three sources of potential return: the yields from the muni bonds themselves, opportunistic investments in securities overlooked by the traditional passive indices, and the income generated by the option-writing strategy,” said Simplify CIO and co-founder David Berns.“It’s a capital-efficient means for investors to stack a number of different return sources without requiring additional investment outlay.”
To fulfill its objectives, NMB invests mostly in investment-grade U.S. muni bonds. Additionally, the fund uses an option strategy.
Simplify’s Muni Strategy
In selecting municipal bonds for the fund, NMB’s management team seeks a balance between income potential and risk management. Simplify may invest in muni bonds that pay fixed, variable, or floating interest rates.
Municipal bonds selected for inclusion within the fund’s portfolio may be scrutinized for a wide variety of factors. These can include pricing, duration, tax impact, risk, credit profile, and portfolio impact, among others.
In terms of portfolio duration, NMB may invest in securities of any maturity duration. However, the fund prospectus notes that NMB’s managers expect the fund to have an average duration of 10 years or higher.
Additionally, NMB may bolster or hedge its exposure to munis by investing in a wide variety of other options. These include U.S. government securities, derivative instruments, or long and short positions on muni securities, among others.
NMB’s muni exposure pairs with an exchange traded and OTC option spread writing strategy. Primarily, the strategy focuses on domestically traded ETFs that are index-based.
Generally spelling, Simplify mostly uses short-term options with less than one month to maturity. To provide collateral for the option strategy, NMB will also use money market funds, fixed income ETFs, U.S. government securities, or corporate debt securities.
NMB is Simplify’s latest fund to leverage the firm’s fixed income strategies. One of its largest funds, the Simplify Short Term Treasury Futures Strategy ETF (TUA), holds over $600 million in assets under management.
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