Simplify Asset Management, a provider of options-based ETFs has announced the launch of its newest ETF, the Simplify Tail Risk Strategy ETF (CYA).
The firm writes that CYA seeks to provide investors with a standalone solution for hedging against severe equity market selloffs. The fund deploys an advanced options overlay designed to handle multiple types of market dislocations and is structured in such a way that modest allocations to the fund may provide a total portfolio hedging solution.
“Bond yields remain near all-time lows, driving more investors into equities to find growth and income. But with so much uncertainty in the markets, it can be extremely challenging for investors and advisors to stay the course in equity-dominated portfolios. That is where CYA comes in,” says Paul Kim, CEO with Simplify. “We’ve designed the fund in such a way that a modest exposure can potentially provide a meaningful hedge against significant drawdowns, those tail risks that can have such a negative impact on a portfolio and the fear of which can push investors into making portfolio allocation missteps.”
CYA invests between 10 and 15 per cent annually in a sophisticated options strategy that is designed to create a highly convex payoff when markets are down significantly. The remainder of the fund is invested in high income strategies to help fund the option purchases.
“The larger the market moves to the downside, the larger the potential benefits from the CYA approach may be,” says Kim. “That’s why our options overlay is referred to as ‘convex,’ as there is a strong distinction between this approach and more linear equity hedging strategies.”
The firm writes that CYA joins a Simplify ETF family that in just over one year, has already grown to approximately USD700 million, as advisers, family offices, institutions and the retail investor community have been drawn to the more scientific approach the firm has pioneered in combining equity index exposures with robust options overlays. More recently, the firm has also introduced a number of innovative ETF solutions designed around interest rate hedging (PFIX), volatility income (SVOL) and equity plus bitcoin exposure, via GBTC (SPBC).