Simplify High Yield ETF (CDX)
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Navigating Private Credit: Simplify's Christopher Getter on PCR
VettaFi recently sat down with Christopher Getter of Simplify Asset Management to discuss the role of private credit in portfolios and the unique structure of the Simplify Private Credit Strategy ETF (PCR), which is currently yielding 12.27%.
CDX: A High-Yield Fund Built For The Crunch
The Simplify High Yield ETF offers a defensive approach to high-yield investing, using proprietary hedges to dampen credit-driven drawdowns. CDX employs swaps, credit default swaps, and options to manage risk, aiming to limit losses during market stress while accepting some upside lag in rallies. Recent market events have shown CDX's hedges can reduce losses compared to traditional high-yield ETFs, though it may underperform in strong credit markets.
Not The Usual High Yield: The CDX Case
Simplify High Yield ETF offers an alternative HY strategy, mixing synthetic exposure with a quality/junk hedge to maximize income and manage credit risk. An ambitious claim, yet so far it has delivered alpha versus classic HY funds. But if every return comes with risk, where is it here? This comes from opportunistic management using synthetic instruments and alternative strategies, which add more uncertainty than passive ETFs.
Simplify High Yield ETF (CDX) FAQ
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Simplify High Yield ETF Profile
| ARCA Exchange | US Country |
Overview
The company operates within the financial investment sector, specializing in the management of a high yield bond fund. This fund primarily focuses on investing in "junk bonds" or high yield bonds, which are considered to be at a higher risk compared to investment-grade bonds but offer potentially higher returns. The investment strategy involves purchasing exchange traded funds (ETFs) that consist of these high yield bonds, while simultaneously applying a credit hedge derivatives strategy. This approach aims to manage and potentially mitigate the risks associated with investing in these high-risk financial instruments. The fund commits at least 80% of its net assets to high yield securities, adhering to a specific investment focus on high yield bonds. Additionally, the fund reserves the right to allocate up to 20% of its portfolio to derivatives, allowing for diversification and risk management strategies beyond traditional bond investments. The fund's strategy indicates a proactive approach to investment management, focusing on the higher end of the risk-return spectrum within the bond market.
Products and Services
- High Yield Bonds ETF Investments
This product component of the service involves investing in exchange traded funds (ETFs) that are primarily comprised of high yield bonds, also known as junk bonds. These ETFs offer investors exposure to a diversified portfolio of high-risk, high-return bonds, providing the potential for higher income through interest payments. The investment in high yield bond ETFs forms the core of the fund’s investment strategy, aligning with its objective to seek higher returns through investments in the high yield bond market.
- Credit Hedge Derivatives Strategy
As part of its risk management and investment enhancement strategy, the fund applies a credit hedge using derivatives. This approach involves the use of financial instruments, such as options, futures, and swaps, to hedge against potential losses associated with credit events or adverse movements in the credit markets. The credit hedge derivatives strategy is designed to protect the fund's investments in high yield bonds, mitigating the inherent risks of default or significant price volatility that may impact the returns on these investments.
- Derivatives Investment
Up to 20% of the fund’s portfolio may be allocated to derivatives, distinct from the credit hedge derivatives strategy. This allows the fund to invest in derivatives for purposes other than hedging, such as speculation or income generation. Derivatives can include a variety of financial instruments, such as options, futures, forwards, and swaps, that derive their value from an underlying asset. This component of the fund’s strategy introduces additional diversification and potential sources of income, albeit with increased risk.
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