Simplify Asset Management, a New York-based specialist in options-based investing, has launched a new ETF providing risk-managed exposure to US equities through a put/spread collar strategy.
The ETF aims to provide S&P 500 exposure while hedging market declines between 5% and 20%.
The Simplify Hedged Equity ETF (HEQT US) has been listed on NYSE Arca and comes with an expense ratio of 0.53%.
The actively managed fund invests primarily in ETFs tracking the S&P 500 while also allocating assets to a put/spread collar strategy based on the S&P 500 ETF.
A put/spread collar involves buying an out-of-the-money put option and selling an out-of-the-money put option at a relatively lower strike price, resulting in what is known as a put option spread. At the same time, the ETF will sell an out-of-the-money call option.
The put option spread is maintained so that the fund is protected from a decrease in the S&P 500 of approximately 5% to 20%, a range that Simplify notes is in alignment with other low volatility strategies.
The premium received from writing call options is designed to offset the net cost of the put option spread; however, investors will be forfeiting upside performance if the S&P 500 rises above the call option’s strike price.
The fund will deploy a ladder of collars that expire over three sequential months, spreading out rebalancing risk and delivering a more consistent hedge over time.
David Berns, CIO and co-Founder at Simplify Asset Management, said: “Many investors struggle to stay the course with their equity investments due to volatility, but by creating a lower volatility equity exposure, those who are more risk-averse can stay invested and improve their opportunities to participate in the market upside. At the same time, with bond yields near all-time lows, investors are searching for alternatives to traditional low volatility investments. The possibility of reduced volatility offered by HEQT creates a powerful alternative for investors, and we’re very pleased to be bringing this fund to market.”
Simplify’s ETF suite, which currently houses $820 million in assets, also includes funds focused on interest rate hedging (PFIX), volatility income (SVOL), equity plus bitcoin (SPBC), and healthcare sector exposure (PINK).