2021 was one for the books, and 2022 is presenting an even more challenging environment for investors. In a low-but-rising rate environment, bond investors in particular will have to reassess their asset mix to manage risks and still generate enough yield to meet client demands. But all may not be lost.
In the upcoming webcast, What to do with the “40” in the 60/40, Simplify Asset Management’s Harley S. Bassman, managing partner, and Eric McArdle, SVP of advisor solutions, will look at new alternative and fixed-income strategies that can help financial advisors best adapt a traditional fixed income portfolio for the challenges in the new year.
For example, the Simplify Interest Rate Hedge ETF (PFIX) seeks to hedge interest rate movements from increasing long-term interest rates. The fund also benefits from market stress when fixed income volatility increases, while still providing the potential for income. PFIX utilizes an institutional-level strategy while bundling it in an ETF wrapper that provides both attractive liquidity and tax efficiency.
PFIX holds a large position in over-the-counter (OTC) interest rate options with the intention of providing a direct and transparent convex exposure to large upward moves in interest rates as well as interest rate volatility. By using OTC derivatives which are typically only available to institutional investors, the fund is similar to owning positions in long-dated put options on 20-year U.S. Treasury bonds. Because the option is held over a longer duration, PFIX is able to provide a transparent and simple interest rate hedge.
Additionally, the Simplify Risk Parity Treasury ETF (TYA) is designed to provide significant duration from only a modest capital allocation while simultaneously attempting to harvest yield curve efficiencies from the belly of the curve. The fund can be used as a replacement for less efficient long-duration holdings, as a means of increasing capital efficiency of intermediate-duration portfolio allocations, or as a building block within innovative portfolio solutions such as risk parity, according to Simplify.
TYA tries to target the duration of the ICE 20+ Year US Treasury Index by investing in Treasuries and Treasury futures in the middle of the curve.
Financial advisors who are interested in learning more about alternative fixed-income solutions can register for the Wednesday, February 2 webcast here.