Simplify launches two credit-hedged fixed income ETFs

Feb 15th, 2022 | By | Category: Fixed Income

Simplify Asset Management has launched two new fixed income ETFs providing exposure to aggregate bond and high yield portfolios while seeking to hedge credit risk using various options-based strategies.

Paul Kim, co-Founder of Simplify Asset Management

Paul Kim, CEO and co-Founder of Simplify Asset Management.

The Simplify Aggregate Bond PLUS Credit Hedge ETF (AGGH US) and Simplify High Yield PLUS Credit Hedge ETF (CDX US) have been listed on NYSE Arca with expense ratios of 0.29% and 0.54%, respectively.

Paul Kim, CEO and co-Founder of Simplify Asset Management, said: “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.

“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.”

Both ETFs invest at least 80% of their assets in low-cost, highly liquid third-party ETFs – AGGH invests exclusively in the $90 billion iShares Core US Aggregate Bond ETF (AGG US) while CDX splits its exposure between the iShares Broad High Yield ETF (USHY US) and VanEck Fallen Angel High Yield ETF (ANGL US).

The other 20% of the ETFs’ assets are assigned to various options-based hedges including call options on credit default swap (CDS) indices, put options on the S&P 500, or long/short strategies. Collectively, the option overlays aim to protect against widening credit spreads in times of market stress.

Kim added: “The credit risk premium can be an attractive return source with the potential to deliver significant income; however, credit spreads can turn quickly, making it essential that investors have easy access to 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.”

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