Simplify Asset Management launches two 'first-of-their-kind' ETFs

Simplify Asset Management (Simplify), a provider of options-based Exchange Traded Funds (ETFs), has launch two 'first-of-their-kind' ETFs – The Simplify Interest Rate Hedge ETF (PFIX), which provides direct and transparent convex exposure to an upward shift in long-dated rates, and The Simplify Volatility Premium ETF (SVOL), the first-ever VIX income strategy with an option hedge.

PFIX, which listed on Tuesday, 11 May, 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 per cent 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,” says 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 on 13 May, 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 minimising 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,” says 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,” adds Paul Kim, CEO and Co-Founder of Simplify. “ETFs are a great democratiser and we’re thrilled to be making the sophisticated strategies underpinning both of these new funds available to the marketplace.”