Simplify Enhanced Income ETF

HIGH

Market cap $159M

HIGH ETF's option-selling strategy exposes investors to significant tail risk, similar to selling insurance, which is unsuitable for most retail investors. Recent market volatility revealed Simplify Enhanced Income ETF suffered the worst drawdown among peers, contradicting its 'lower volatility' marketing claims. The fund has strayed from its mandate by selling single-tailed puts and options on speculative stocks, undermining investor trust.

The Simplify Enhanced Income ETF employs a complex options trading strategy, akin to a hedge fund, which has resulted in significant underperformance compared to stable cash alternatives like BIL. HIGH's reliance on trading decisions involving assets like gold and MicroStrategy, which is tied to Bitcoin, exposes investors to high volatility and speculative risks, without delivering commensurate returns. The ETF's performance is heavily reliant on the active trading decisions of its portfolio managers. This introduces a level of risk tied to the success of those trading decisions.

The Simplify Enhanced Income ETF uses options spreads to generate higher yields, but recent active trading strategies have led to significant losses. Retail investors must distinguish between fixed income spreads and 'yield enhancement' strategies, which involve profit and loss from active trading. HIGH's strategy suffered in July/August due to the market pricing of rate cuts and HIGH's positioning, nearly wiping out its gains for the year.

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

HIGH combines fixed income instruments with options trading to generate a 7.2% annualized distribution yield. The fund's strategy involves T-Bills and options on indexes like NASDAQ 100 and S&P 500, but limited allocation to options restricts profitability. HIGH has underperformed compared to major indexes and peer ETFs, delivering only 11% ROI since inception, despite consistent income distributions.

Initially, the Simplify Enhanced Income ETF seemed promising, offering a 9% yield by leveraging short-term U.S. treasuries and option spreads. The fund's options spread strategy, however, is too unpredictable and has downside risk that was exposed by the unwinding of the Japanese Yen carry trade. These downside risks make HIGH less attractive, questioning its reliability and suitability for retail investors seeking stable income.

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HIGH is a somewhat unique income ETF. It invests in t-bills and option spreads, generating significant income and premiums. HIGH currently yields 9.3%, although returns have slightly trailed behind.

HIGH is an ETF from Simplify Asset Management. It aims to generate monthly income through short-dated option spreads on various equities. The core holdings are Treasury Bills with an overlay of constantly changing options positions. HIGH has had respectable performance in 2024, outperforming Treasury bonds by 70 bps with a low-risk profile, suitable for cash parking instruments.

The Simplify Enhanced Income ETF sells options to generate modest income for investors. A recent blowup at the Simplify Macro Strategy ETF highlights operational risk at the asset manager, as the fund was investing outside of its mandate. Investors may want to consider alternatives to the HIGH ETF due to heightened operational risk and mandate drift with Simplify products.