Simplify Credit Hedge ETF
Ticker: CDX
Exchange: NYSE Arca
Expense ratio: TBD (at least 0.50%)
Original filing date: March 9, 2021
Effective date: May 24, 2021
Listing Date: TBD
CUSIP: TBD
Active: Yes
Index / Benchmark: Not Applicable
Investment Objective:
Seeks to hedge credit
spread movements arising from an increase in credit spreads, and to benefit
from market stress when fixed income volatility increases, while providing the potential
for income.
Investment Strategy:
Portfolio of CDX payer options that are likely to be profitable as CDX spreads widen. Also invests in US treasuries, TIPS, MMkt funds, & ETFs.
Adviser: Simplify Asset
Management Inc.
Sub-Adviser: N/A
Adminstrator: Bank of New York Mellon
Fund accountant: Bank of New York Mellon
Custodian: Bank of New York Mellon
Distributor: Foreside Financial
Services, LLC
Legal counsel: Thompson Hine LLP
External accounting: TBD
Prospectus is here.
MORE ETF HEARSAY
Principal Investment Strategies: The adviser seeks to achieve the Fund’s investment objective by investing in credit default swap (“CDS”) index payer options, U.S. Treasuries, U.S. Treasury Inflation-Protected Securities (“TIPS”), money market funds, and exchange traded funds (“ETFs”) that primarily invest in U.S. Treasuries, TIPS, and investment grade bonds. The Fund may invest up to 50% of its assets in CDS index payer options.
A CDS index option is a credit derivative used to hedge credit risk. There are generally two types of CDS index options, payer options and receiver options. The Fund invests in payer options (not receiver options). A payer option entitles the holder to the right, but not the obligation, to buy protection on the credit default swap index (“CDX”) at the strike spread level on expiry. The Fund seeks to create a portfolio of CDX payer options that are likely to be profitable as CDX spreads widen (as a widening spread generally indicates growing concern about the ability of borrowers to service their debt).
The Fund invests in Treasuries and TIPS directly or through other ETFs. TIPS are U.S. government bonds (specifically, Treasury securities) whose principal amount increases with inflation, as measured by the Consumer Price Index and are designed to protect investors from inflation risk. The Fund may purchase Treasuries or TIPS of any maturity.
PRINCIPAL INVESTMENT STRATEGIES:
The adviser seeks to achieve the Fund’s investment objective by investing in credit default swap (“CDS”) index payer options, U.S. Treasuries, U.S. Treasury Inflation-Protected Securities (“TIPS”), money market funds, and exchange traded funds (“ETFs”) that primarily invest in U.S. Treasuries, TIPS, and investment grade bonds. The Fund may invest up to 50% of its assets in credit default swap (“CDS”) index payer options.
A CDS index option is a credit derivative used to hedge credit risk. There are generally two types of CDS index options, payer options and receiver options. The Fund invests in payer options (not receiver options). A payer option entitles the holder to the right, but not the obligation, to buy protection on the credit default swap index (“CDX”) at the strike spread level on expiry.
The CDX is a benchmark made up of credit default swaps that have been issued by North American and emerging market companies. A credit default swap is a type of derivative contract that offers one counterparty protection against a credit event of an issuer. The CDX currently is comprised of over 100 issuers and tracks and measures total returns for investment grade and high yield segments of the bond issuer market. The CDX is rebalanced every six months.
The Fund seeks to create a portfolio of CDX payer options that are likely to be profitable as CDX spreads widen (as a widening spread generally indicates growing concern about the ability of borrowers to service their debt). If a default occurs prior to the CDS index payer option’s expiration date, the Fund can trigger a credit event on the exercise of the option. investor who exercises a payer option becomes short the credit risk of the CDX, meaning that an increase in default events are likely to be profitable to a payer option holder, as such holders receive default losses. A buyer of a CDS index payer option receives both the payoff due to the difference between the spread level at the expiration date and the strike of the option and the payoff due to any losses.
The Fund invests in Treasuries and TIPS directly or through other ETFs. TIPS are U.S. government bonds (specifically, Treasury securities) whose principal amount increases with inflation, as measured by the Consumer Price Index and are designed to protect investors from inflation risk. The Fund may purchase Treasuries or TIPS of any maturity.
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