Simplify Launches 2 Fixed Income ETFs Focused on Hedging Credit Risk

Simplify Asset Management today launched two new strategies providing exposure to diversified investment-grade bonds and high-yield corporate debt with unique credit hedge overlays.

The Simplify Aggregate Bond PLUS Credit Hedge ETF (AGGH) and the Simplify High Yield PLUS Credit Hedge ETF (CDX) began trading on the NYSE on February 15. AGGH and CDX carry expense ratios of 29 basis points and 50 basis points, respectively.

“In volatile markets, during times of financial stress, credit spreads can often widen with little notice, having a seriously detrimental effect on the performance of an investor’s fixed income portfolio. Hedging against such credit risk can be complicated and expensive, two issues we’ve sought to solve with the launch of AGGH and CDX,” Paul Kim, CEO & co-founder of Simplify, said in a statement. “Through these ETFs, investors now have an approach that allows them to build a core fixed income portfolio, capturing both the investment grade and high yield universes, while also incorporating sophisticated credit hedge overlays to help protect against sudden shifts in credit spreads.”

AGGH is the first ETF to provide investment-grade bond exposure with a credit hedge overlay. The fund’s core bond exposure will be delivered via the low-cost, highly liquid iShares Core U.S. Aggregate Bond ETF (AGG) with a credit hedge overlay consisting of a combination of CDX calls, quality-junk factor-based hedges, or SPX puts, selected opportunistically by the Simplify team, according to a statement from the firm.

CDX is the first ETF to provide high-yield bond exposure with a credit hedge overlay, with the hedges opportunistically selected from among CDX calls, quality-junk factor-based hedges, or SPX puts. The underlying core high-yield bond exposure will also be delivered via low-cost, liquid ETFs such as the iShares Broad High Yield ETF (USHY) and the VanEck Fallen Angel High Yield ETF (ANGL), according to the firm.

“The credit risk premium can be an attractive return source with the potential to deliver significant income,” Kim said in a statement. “But credit spreads can turn quickly, making it essential that investors have easy to access credit hedging techniques. We’re very pleased to be bringing these funds to market as we continue to build some of the industry’s most robust suite of tools for investors looking to hedge against key risks, access opportunities with convexity, and build portfolios positioned for the uncertain markets of the future.”  

AGGH and CDX are part of a Simplify ETF lineup that crossed the $1 billion mark to end 2021, and which now includes three fixed income funds, joining the Simplify Risk Parity Treasury ETF (TYA)

Last month, the firm launched a trio of new funds — the Simplify Emerging Markets Equity PLUS Downside Convexity ETF (EMGD), the Simplify US Small Cap PLUS Downside Convexity ETF (RTYD), and the Simplify Developed Ex-US PLUS Downside Convexity ETF (EAFD) — each with an integrated downside convexity option overlay intended to limit each fund’s losses.

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