In an environment where conventional income strategies are being pushed to their limits by persistent rate volatility and ambiguity, Simplify Asset Management is betting big on innovation.
On Tuesday, the company introduced two actively managed ETFs, Simplify Barrier Income ETF (NYSE:SBAR) and Simplify Target 15 Distribution ETF (NYSE:XV), designed to provide investors structured, high-yielding income by leveraging the use of barrier put options.
In an era when fixed income returns continue to be squeezed and equity markets are volatile, these new funds are intended to offer stable income streams with well-defined downside risk -- a hard-to-find combination in the current investing environment.
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David Berns, Simplify’s CIO and co-founder, said the ETFs provide a degree of transparency and control that products simply cannot.
The Barrier Strategy
Both SBAR and XV write barrier put options, a derivative that exposes the writer to downside only in the event a certain level is violated, on a worst-of basket consisting of ETFs representing U.S. large-cap, small-cap and growth stocks. The “worst-of” strategy increases the potential of the option premium, which is subsequently redistributed to investors in the form of monthly income.
The funds' options are structured with predefined barrier levels, allowing investors to better understand their risk exposure upfront. Between expirations, fund prices will still fluctuate based on the options’ market value, but actual downside losses are only realized if the worst-performing index crosses the barrier.
Inside The Funds
SBAR provides monthly income by blending U.S. Treasuries (with a target portfolio duration of less than two years) and a laddered 30-barrier put strategy. The objective is to provide higher yield relative to traditional bonds, with specified downside risk.
XV seeks a targeted 15% annualized rate of distribution, distributed monthly. Similar to SBAR, it also holds short-term Treasuries but dynamically adjusts barrier levels to back the income objective -- in effect, presenting a more elastic income approach.
Both have a net expense ratio of 0.75% and are conceived as ongoing products, whose options are rolled in a systematic fashion, such that long-term exposure is provided without timing worries.
The launches are part of a larger shift in investor priorities -- from pursuing returns to pursuing steady income and clearer risk transparency. With this expansion, Simplify broadens its line of products to over 35 ETFs and almost $7 billion in assets under management, solidifying its position as a prime alternative ETF strategy provider.
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