Today, Simplify rolled out an actively managed ETF designed to be a one-stop, “total portfolio” solution for investors under the premise that a traditional 60/40 equity/bond portfolio no longer provides the same solutions for risk and diversification needs that it once did.
The Simplify Macro Strategy ETF (FIG) will mainly invest in other ETFs and apply a derivatives overlay that can include futures and options. The fund lists on the NYSE Arca with an expense ratio of 0.75%.
“The objective here is we've spent basically the last year and a half building the building blocks of what we think of as a core portfolio that can replace the 60/40 construction, what others have referred to as a ‘permanent portfolio,’” said Simplify Chief Strategist and Portfolio Manager Mike Green, adding that a permanent portfolio approach typically allocates 25% each to gold, U.S. equities, bonds and trend-following strategies.
FIG’s ETF holdings include equity, fixed income and alternative products. At launch, the fund’s allocation to other ETFs included a nearly 34% weighting to the Simplify Managed Futures ETF (CTA), a 32.4% weighting to the Simplify High Yield PLUS Credit Hedge ETF (CDX), a 26.7% weighting to the Simplify Volatility Premium ETF (SVOL) and a 6.4% allocation to the iShares Gold Trust (IAU). Green says those core exposures will be rebalanced on a monthly basis, and are basically a permanent feature of the portfolio, with tactical positions taken as needed.
Meanwhile, the derivatives overlay can be used to protect the portfolio or to magnify exposures, Green says. He notes that the options aspect of the overlay includes holdings of in-the-money call options.
“An in-the-money call option is going to allow you to have more U.S. equity exposure than you otherwise would, without the risk accompanying the direct application of leverage. There's no margin call [possibility] or anything else, [and] the most you can lose is the premium that you spend on the equity option,” he added.
Additionally, a press release noted, “Hedged exposures to credit and volatility risk premia seeks to provide income with limited duration exposure, while managed futures exposure across commodities and rates intend to add absolute return, inflation sensitivity, and equity diversification to the portfolio.”
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