Today, Simplify Asset Management added an ETF focused on protecting investors against sudden and steep downturns in the market. The Simplify Tail Risk Strategy ETF (CYA) combines an income strategy with a downside mitigation strategy, according to its prospectus.
CYA comes with an expense ratio of 0.50% and lists on the NYSE Arca.
The actively managed ETF invests 50-90% of its assets in fixed income and income-generating ETFs, with the latter targeting assets that offer a yield higher than that of the two-year Treasury note such as REITs and MLPs. Up to 20% of the fund’s assets can be invested in derivatives related to other ETFs, interest rates, credit default swaps and volatility, the fund document says.
“We’ve designed the fund in such a way that a modest exposure can potentially provide a meaningful hedge against significant drawdowns, those tail risks that can have such a negative impact on a portfolio and the fear of which can push investors into making portfolio allocation missteps,” said Simplify CEO Paul Kim.
The fund aims to provide an extremely convex payoff in the event of a market downturn and uses its high-income strategy to help fund the options strategies, according to the prospectus.
“The larger the market moves to the downside, the larger the potential benefits from the CYA approach may be. That’s why our options overlay is referred to as ‘convex,’ as there is a strong distinction between this approach and more linear equity hedging strategies,” Kim explained.
At launch, CYA’s primary holding was the $33 million Simplify Volatility Premium ETF (SVOL), an ETF that offers exposure to S&P 500 VIX short-term futures with a daily reset.
Contact Heather Bell at [email protected]