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Simplify launches two funds focused on hedging credit risk

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ETF issuer Simplify Asset Management has announced the launch of two fixed income ETFs, the Simplify Aggregate Bond PLUS Credit Hedge ETF (AGGH), and the Simplify High Yield PLUS Credit Hedge ETF (CDX).

“In volatile markets, during times of financial stress, credit spreads can often widen with little notice, having a seriously detrimental effect on the performance of an investor’s fixed income portfolio. Hedging against such credit risk can be complicated and expensive, two issues we’ve sought to solve with the launch of AGGH and CDX,” says Paul Kim, CEO & Co-Founder of Simplify. “Through these ETFs, investors now have an approach that allows them to build a core fixed income portfolio, capturing both the investment grade and high yield universes, while also incorporating sophisticated credit hedge overlays to help protect against sudden shifts in credit spreads.”

The firm writes that AGGH is the first ETF to provide investment grade bond exposure with a credit hedge overlay. The fund’s core bond exposure will be delivered via the low cost, highly liquid iShares Core U.S. Aggregate Bond ETF (AGG) with a credit hedge overlay consisting of a combination of CDX calls, Quality-Junk factor-based hedges, or SPX puts, selected opportunistically by the Simplify team.

The firm writes that CDX is the first ETF to provide high yield bond exposure with a credit hedge overlay, with the hedges opportunistically selected from among CDX calls, Quality-Junk factor-based hedges, or SPX puts. The underlying core high yield bond exposure will also be delivered via low-cost, liquid ETFs such as the iShares Broad High Yield ETF (USHY) and VanEck Fallen Angel High Yield ETF (ANGL).

“The credit risk premium can be an attractive return source with the potential to deliver significant income,” says Kim. “But credit spreads can turn quickly, making it essential that investors have easy to access credit hedging techniques. We’re very pleased to be bringing these funds to market as we continue to build some of the industry’s most robust suite of tools for investors looking to hedge against key risks, access opportunities with convexity, and build portfolios positioned for the uncertain markets of the future.”

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