Simplify High Yield ETF

CDX

Market cap $467M

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%.

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.

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.

CDX ETF has outperformed peers and delivered strong returns, validating its unique quality/junk equity hedge strategy for high-yield bond exposure. Recent volatility in April highlighted the risks of basis mismatch between credit and equity hedges, but the fund ultimately recovered well. However, I am concerned by signs of 'mandate creep,' as Simplify's portfolio managers have taken positions outside the fund's stated strategy, increasing operational risk.

Paisley Nardini, Simplify Asset Management managing director and portfolio manager, and Dave Nadig, financial futurist, join Dom Chu on “ETF Edge” to talk about new investor optimism, ETFs adopting a hedge fund- like strategy and what these funds can do for investors now.

NEW YORK--(BUSINESS WIRE)--Simplify Asset Management has announced that the Simplify High Yield PLUS Credit Hedge ETF (NYSE Arca: CDX) has been renamed Simplify High Yield ETF.

A reader asked for my thoughts on CDX. CDX focuses on high-yield corporate bonds with a credit hedge meant to protect investor capital when credit spreads widen. CDX's credit hedges, including S&P 500 puts and credit default options, have been ineffective during past downturns and credit events.

CDX has shifted from a high yield ETF with an embedded hedge to a multi-asset fund. The fund's new structure introduces higher risk, making it unsuitable as a building block for high yield portfolios. Current high yield credit spreads are at decade lows, making the macro environment unfavorable for high yield investments.

NEW YORK--(BUSINESS WIRE)--Simplify announced today that it expects to deliver capital gains distributions across six Simplify ETFs.

Simplify High Yield PLUS Credit Hedge ETF uses a long-short portfolio of high-quality vs. low-quality stocks to hedge credit risk, offering a positive carry credit hedge. While CDX offers protection against credit risk, it does not hedge against rising interest rates, posing a risk during periods of increasing rates. I rate CDX a buy for its potential to make high-yield bonds more palatable by mitigating downside risks from a negative credit cycle.