Simplify Adds to Its Fixed Income ETF Suite With Launch of Two Funds Focused on Hedging Credit Risk

Rhea-AI Summary

Simplify Asset Management has launched two innovative ETFs: the Simplify Aggregate Bond PLUS Credit Hedge ETF (AGGH) and the Simplify High Yield PLUS Credit Hedge ETF (CDX). These funds aim to provide exposure to diversified investment-grade and high-yield corporate bonds, respectively, while including credit hedge overlays. AGGH offers investment-grade bond exposure using the iShares Core U.S. Aggregate Bond ETF with hedges selected by the Simplify team. CDX targets high yield bonds with strategies to mitigate credit risk. Both funds are designed to protect investors against sudden shifts in credit spreads.

Positive

• Launch of innovative ETFs AGGH and CDX targeting fixed income investments.
• AGGH offers investment-grade bond exposure with a credit hedge overlay.
• CDX provides high-yield bond exposure along with credit hedges.
• Funds aim to help investors manage credit risk effectively in volatile markets.
• Part of a growing suite of Simplify ETFs which crossed $1 billion in assets.

Negative

• Limited operating history poses an investment risk for both ETFs.
• Potential for increased volatility and risks associated with low-rated bonds in CDX.
• Use of derivatives increases complexity and potential for loss.
• Market conditions may affect the funds' performance adversely.

AGGH and CDX are first-of-their-kind funds, providing exposure to diversified investment grade bonds and high yield corporate debt, respectively, with unique credit hedge overlays

NEW YORK--(BUSINESS WIRE)-- Simplify Asset Management (“Simplify”), an innovative provider of Exchange Traded Funds (“ETFs”) designed to solve today’s most pressing portfolio construction challenges, is today announcing the launch of two first-of-their-kind fixed income ETFs:

• Simplify Aggregate Bond PLUS Credit Hedge ETF (AGGH), and
• Simplify High Yield PLUS Credit Hedge ETF (CDX).

“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,” said Paul Kim, CEO & Co-Founder of Simplify. “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.

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 VanEck Fallen Angel High Yield ETF (ANGL).

“The credit risk premium can be an attractive return source with the potential to deliver significant income,” added Kim. “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).

ABOUT 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.

Important Disclosures
The funds are actively-managed and subject to the risk that the strategy may not produce the intended results. The funds are new with a limited operating history to evaluate. The Funds invest in ETFs (Exchange-Traded Funds) and entails higher expenses than if invested into the underlying ETF directly. For CDX, the lower the credit quality it invests in, the more volatile performance will be. When junk bonds sell off, the lowest-rated bonds are typically hit hardest known as blow up risk. Likewise, the riskiest bonds typically rise fastest in a bull market however these investments that don't have a credit rating are typically the most volatile, hard to price and the least liquid.

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. 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 Fund’s investment in fixed income securities is subject to credit risk (the debtor may default) and prepayment risk (an obligation paid early) which could cause its share price and total return to be reduced. Typically, as interest rates rise the value of bond prices will decline and the fund could lose value.

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.

Convexity: A measure of how the duration of a bond changes in correlation to an interest rate change. The greater the convexity of a bond the greater the exposure of interest rate risk to the portfolio.

Investment Grade: Refers to the quality of a company's credit and must be rated at 'BBB' or higher by Standard and Poor's or Moody's. Credit quality does not refer to the fund itself.

Quality-Junk: A long/short equity factor created by being long quality equity names while being short junk equity names. Quality equities generally have high margins, profit stability, and strong balance sheets. Junk names are generally those stocks with high sensitivity to an increase in debt refinancing costs.

Simplify ETFs are distributed by Foreside Financial Services, LLC.

View source version on businesswire.com: https://www.businesswire.com/news/home/20220215005187/en/

MEDIA:

Chris Sullivan

MacMillan Communications

(212) 473-4442

chris@macmillancom.com

Source: Simplify Asset Management

FAQ

What are Simplify Aggregate Bond PLUS Credit Hedge ETF (AGGH) and Simplify High Yield PLUS Credit Hedge ETF (CDX)?

AGGH and CDX are innovative ETFs launched by Simplify Asset Management, designed to provide exposure to investment-grade bonds and high-yield corporate debt, respectively, with added credit hedge overlays.

What is the purpose of the credit hedge overlays in AGGH and CDX?

The credit hedge overlays in AGGH and CDX are intended to protect investors against sudden shifts in credit spreads, especially during volatile market conditions.

When were AGGH and CDX launched?

AGGH and CDX were launched by Simplify Asset Management in February 2022.

How do AGGH and CDX help investors in a volatile market?

Both AGGH and CDX provide strategies to manage credit risk and enhance portfolio stability during times of financial stress.

What is the asset threshold crossed by Simplify ETF lineup?

The Simplify ETF lineup, which includes AGGH and CDX, crossed the $1 billion asset threshold by the end of 2021.