Simplify Asset Management, a New York-based specialist in options-based investing, has launched a new ETF deploying a hedging strategy that seeks to protect against severe market downturns.

Paul Kim, co-Founder and CEO of Simplify Asset Management.

The Simplify Tail Risk Strategy ETF (CYA US) has been listed on NYSE Arca and comes with an expense ratio of 0.50%.

The fund invests up to 20% of its assets in an advanced options overlay that includes put options and put option spreads on broad market equity ETFs, long-volatility futures, interest rate futures and options, options on credit default swap indices, and foreign exchange futures.

According to Simplify, the hedging strategy is designed to handle multiple types of market dislocations and is structured in such a way to deliver a convex payoff – the ETF’s gains accelerate as equity markets fall deeper into negative territory.

The fund’s remaining assets are allocated to income-generating fixed income ETFs, such as those that invest in REITs or MLPs, in a bid to help finance the fund’s option purchases.

Paul Kim, CEO of Simplify Asset Management, said: “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. 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.”

Simplify has introduced a number of innovative ETF solutions in recent years. The suite, which collectively houses over $700 million in assets, is designed around interest rate hedging, volatility income, and equity plus bitcoin exposure.