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Interest Rate Hedge

PFIX Simplify Interest Rate Hedge ETF is up 6.45% YTD. Might be worth a look. Thoughts?


  • edited January 2022
    PFIX's hedge is working great MTD due to interest rate concerns, but ugly performer otherwise. If you believe that interest rates are going to go zoom through the roof, then it could be a nice find for 2022.

    Simplify Interest Rate Hedge ETF (PFIX)
    Year Month Return
    2021 6 -15.30%
    2021 7 -2.08%
    2021 8 -1.94%
    2021 9 2.28%
    2021 10 -1.35%
    2021 11 -1.50%
    2021 12 -5.00%
  • I tried to look through website and prospectus but the strategy was unclear - some combo of long Treasuries with options overlay.

    Looking at its chart, it does have positive correlation with 10-yr Treasury yields, but looking at some hi-lo values, friction/drag is awfully high. If sinks very rapidly but bounces slowly. Soon after inception, rates fell 21 bps (only) and it collapsed; but now rates are higher than at inception, and it is well under the inception value. Looks like a bad deal.

    Values 10-yr Yield
    51.25 1.575%
    38.46 1.354%
    42.31 1.655%
    37.38 1.550%
    40.97 1.725%
  • Thanks for your thoughts. Just looking at options here in this low rate and potential rising rate environment.
  • Thanks Hank
  • Much more information on PFIX is available from it's creator, Harvery Bassman, whose commentaries and musings on interest rates, money creation and the economy are really worth reading in detail.

    He has a very entertaining and very wise blog. While the math and options talk is heavy, I think he is brilliant and clearly knows what he is talking about.

    He recently joined Simplify Asset Management to mange ETFs designed to do things for individual investors that are hard to do otherwise ( Puts, call, swaps, convexity strategies etc)

    Unlike a lot of public bears I think Bassman knows what he is talking about and backs it up with math and data

    He explains the rational for PFIX in his May 2021 commentary "Helicopter Defense"

    and likens it to fire insurance. It is basically a swap on interest rate futures that will soar ( will quadruple ) if rates hit 4% by 2024 or so. Backed by T bills as collateral, it can loose no more than 50%

    He recommends using a chunk to prevent your bond funds from taking you to the cleaners, or to protect yourself against other disastrous outcome in store in if inflation takes off and you have an adjustable rate mortgage for example.

    He has tables that provide examples of how much to invest etc.

  • Good to know that, "it can loose no more than 50%"
  • PFIX is now up 16.31 YTD. Glad that I ended up taking a small postion. The only other bond funds/ETFs that are working for me a little this year are RPIEX and CBON. Anyone else finding a bond fund/ETF working for 2022 YTD?
  • edited February 2022
    Price’s RPEIX has a similar mandate but is much lower octane than what you’re messing with.

    Here’s a blurb from TRP: “The Fund seeks high current income. The Fund invests at least 80% of its net in bonds, and seeks to offer some protection against rising interest rates and provide a low correlation with the equity markets. It invests at least 40% of its net assets in foreign securities including securities of emerging market issuers.”

    Hedging can take many forms, usually involves risks, and may seem counterintuitive at the time. I’m glad you’ve had success with PFIX..
  • I think good old PIMIX tries to hedge interest rate risk to some extent. Still pretty happy with this giant overall.
  • @hank

    I don't see DFND on Simplify website and M* says is from SRN advisors.

    Simplify has many hedged ETFs but their descriptions of what they are designed to do is rather vague unless you understand options better than I do.

    Bassman is quite specific about PFIX as insurance against interest rates rising and has a fair amount of data on predicting what it will do in various scenarios. He also recommends only small positions, say less than 5 % of a total bond portfolio.

    I am not sure that an inverse treasury ETF would not do the same thing, but there you could loose a lot more than 50%
  • edited February 2022
    @sma3 Thank you for catching my misstep. I’ll (cheerfully) edit earlier post to delete comment.

    Here’s the name of DFND - Clearly not a Simplicity offering: Siren DIVCON Dividend Defender ETF

    I don’t have any opinion on PFIX as long as folks understand the potentially very high volatility and that it can move both ways. I own a few like that myself.:(

    In hindsight, perhaps a 30 year fixed rate mortgage at 2.75% or 3% would constitute an interest rate hedge? In that case, the bank, government or financial institution is the lender / investor.
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