Simplify Debuts 2 Credit-Hedged Bond ETFs

February 15, 2022

Simplify Asset Management debuted two ETFs that track the investment-grade and high-yield bond markets with an added credit hedge as spreads start to widen. 

The Simplify Aggregate Bond PLUS Credit Hedge ETF (AGGH) and the Simplify High Yield PLUS Credit Hedge ETF (CDX) both debuted on the NYSE Arca on Tuesday. AGGH will initially charge a 0.29% expense ratio until an introductory fee waiver expires and brings the fee to 0.54%, while CDX starts with a 0.50% fee before moving to a 0.75% fee. The waivers expire at the end of October 2023. 

Both funds earmark 80% of their assets toward other ETFs following their respective portions of the bond market. AGGH will primarily hold shares in the iShares Core U.S. Aggregate Bond ETF (AGG), the largest U.S. bond ETF in the world, at $87.5 billion in assets, while CDX will hold shares in the iShares Broad USD High Yield Corporate Bond ETF (USHY) and the VanEck Fallen Angel High Yield ETF (ANGL)

The other 20% of assets are devoted to options-based hedges, including calls on the Credit Default Swap Index, put options on the S&P 500 or long/short strategies. 

The goal of these strategies is to reduce the cost to investors of getting protection against widening credit spreads in times of financial turmoil, Simplify CEO Paul Kim said. 

Spreads on investment-grade debt crossed the 1.10% mark last week, the first since late November 2020, while spreads for junk debt have whipsawed in the past three months. 

“We think in today's environment, you could get a pretty effective credit hedge that works when the market sells off, but also preserve the income and carry that one has expected out of that asset class,” he said. 

 

Contact Dan Mika at [email protected], and follow him on Twitter 

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