Simplify Stable Income ETF

BUCK

Market cap $417M

Simplify Treasury Option Income ETF offers a 7.55% yield via option spreads and a portfolio of short-term Treasuries. BUCK has outperformed the Treasury bill benchmark by 60 bps annualized since inception, but with higher drawdowns (5.4%) and some capital erosion. Among bond and options income ETFs, CSHI provides a more stable asset value, much lower volatility, and slightly better total return despite a lower yield.

NEW YORK--(BUSINESS WIRE)--Simplify Asset Management announces that it expects to deliver capital gains distributions across ten ETFs.

Simplify Treasury Option Income ETF (BUCK) is marketed as a cash-plus, ultra-short duration fund but carries significant hidden interest rate risk. BUCK's effective duration is 4.98 years, far above category peers, exposing investors to potential -5% losses from a 100 bp rate move. The fund generates a 7% distribution rate, with 2.5% from option premiums, but this extra yield is not justified by the increased risk.

Simplify Treasury Option Income ETF offers monthly income by combining ultra-short US Treasuries with a systematic options-selling overlay. BUCK's strategy limits interest rate sensitivity and credit risk, making it a potential alternative to cash or core fixed income for income-focused investors. Current macro conditions, including the 25-bp Fed rate cut and a stable SOFR–IORB spread, support continued robust income generation for BUCK.

Simplify Treasury Option Income ETF offers enhanced yield by combining short-term U.S. Treasuries with an options strategy. BUCK provides a tempting 7.5% yield, surpassing traditional Treasury ETFs and even some high-yield bond ETFs, but carries additional risks. The ETF is not suitable as a cash replacement or emergency fund due to its exposure to tail risk and occasional drawdowns.

Simplify Treasury Option Income ETF aims to provide monthly income by combining Treasury holdings with an options strategy, positioning itself as a cash alternative with yield enhancement. The ETF has underperformed traditional cash vehicles, posting a negative Sharpe ratio and high volatility, failing to meet its stated objectives. BUCK relies on portfolio manager discretion for rates trading, resulting in hedge-fund-like risks without delivering superior returns or transparency.

A Short-Duration ETF with an Options-Based Yield Boost: Just What We Needed? Yes, but not to be confused with true cash alternatives; here, risk amplifies with volatility. The options strategy boosts the yield above 8%, with monthly returns, over 70% in the form of ROC, but beware of the total return.

U.S. Treasury Bill yields have been trending lower since last July as interest rate cuts started to be priced into the market. The Simplify Treasury Option Income ETF is a yield-enhanced Treasury Bill fund. This ETF looks to maximize Treasury Bill total returns while targeting a duration of one year or less and additionally looks to enhance yield via structural alpha by selling options on Treasuries. In our view, option-based convexity risk is much more compelling than credit risk right now given that the MOVE Index remains elevated and credit spreads are very tight.

I initially rated BUCK as Sell due to volatility and unpredictability, but new information regarding BUCK's operational strategy prompted me to upgrade my rating. BUCK offers 2-3% higher yields than short-term US treasuries, making it a viable high-yield bond alternative with lower volatility. Though it's still not suitable as a short-term cash alternative, income investors can appreciate BUCK's higher income and lower volatility compared to traditional high yield bonds.

NEW YORK--(BUSINESS WIRE)--Simplify Stable Income ETF (BUCK) has been renamed as Simplify Treasury Option Income ETF, effective October 29, 2024.