ETF Prime: Crigger on the Simplify Tail Risk Strategy ETF and More

To kick off this week’s episode, Geraci spoke with VettaFi’s Editor-in-Chief, Lara Crigger, about the Simplify Tail Risk Strategy ETF (CYA B). Geraci first shared that he has received several different questions from listeners asking if CYA is a broken product. These questions led him to discuss this topic on the show this week.

Geraci then shared that the fund is down nearly 85% YTD and down 99.7% in the trailing one-year. He asked Crigger to explain Simplify’s original goal with this ETF, and how they have gone about it since the release of the product.

“CYA uses what’s called a convexity strategy to hedge against severe equity declines,” Crigger said.

Crigger said that the key words to pay attention to in that statement is, “severe equity declines.” The convexity strategy that CYA uses was designed to outperform benchmarks during major growth and major declines. However, in normal markets, there is some lag against the benchmarks. She also shared that this strategy is common in the institutional world.

Furthermore, Crigger continued to dive into the convexity strategy, goals, and holdings behind the CYA ETF.

The conversation then began to move in the direction of the performance of the fund in recent years. Geraci reiterated that the significant losses that this fund has seen, losing nearly 100% in the past year. He also pointed out that the fund has lost 85% in 2024 thus far. He then asked Crigger to look underneath the hood of the fund to provide more context on what has caused this lackluster performance.

“If you look at the chart, most of the loss last year came in Q4,” Crigger said.

She shared that during that time frame the fund dropped about 96%. Crigger believed that the negative performance could be due to the S&P’s growth in Q4. Ultimately, Crigger said that if the S&P is performing well, or even semi-well, the CYA fund is less likely to successfully perform in the way that it was designed to. She also shared that Simplify has consistently stated that investors should expect a decline in years without a tail-risk styled event.

With much of CYA’s negative growth being attributed to a positive performance of the S&P 500, and the lack of a tail-risk styled event, investors may have expected this fund to perform similarly to other funds in the same category. Yet, Crigger shared, this is not the case for CYA.

“If you can take a look at CYA against other tail risk ETFs, you’ll notice that it performed worse,” Crigger said. She then pointed to similar funds like Cambria Global Tail Risk ETF (FAIL B) and Global X S&P 500 Tail Risk ETF (XTR B), which have performed far better than CYA. However, Crigger said that, doing a deep dive into CYA’s portfolio, she feltit would deliver on the tail risk strategy the best out of the three funds she mentioned.

In addition, the duo discussed several details about the CYA ETF, its performance, and more.

To close this week’s podcast, Geraci brought on PIMCO’s Head of US Global Wealth Management, Greg Hall. Prior to their conversation, Geraci highlighted how PIMCO as a firm had continued to expand its ETF lineup with  22 funds on the market and nearly $25 billion in assets. He then shared his opinion that when investors think of PIMCO, they tend to associate the company with actively managed fixed income products.

Hall joined the conversation by saying, "We certainly hope advisors and clients think about us in terms of actively managed fixed income, because that’s where we spend the predominance of our time.”

Hall then shared the biggest question he is currently getting from advisors: where to park client’s money that has been sitting on the sidelines for the past few years. He said that PIMCO is telling the individuals they work with to look at actively managed fixed income products.

Additionally, the duo explored several benefits of the actively managed fixed income market, and the dove into PIMCO’s ETF lineup.

For more ETF Prime podcast episodes, visit our ETF Prime channel.