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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%
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
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.
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 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%
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.