Simplify Exchange Traded Funds - Simplify Enhanced Income ETF (HIGH)HIGH

Simplify Enhanced Income ETF (PINE): A Profile

Profile:

The Simplify Enhanced Income ETF (PINE) seeks to provide investors with enhanced income and total return, primarily through investments in mortgage-backed securities (MBS), asset-backed securities (ABS), and other income-generating fixed income instruments. The ETF utilizes a combination of active management and option strategies to maximize income generation and deliver attractive returns for investors. PINE has a target duration of 3-5 years, offering exposure to intermediate-term fixed income assets.

Objective:

The primary investment goal of PINE is to generate a high level of current income, while also achieving capital appreciation over the long term. The ETF achieves this objective through active management, which aims to identify and invest in high-quality, income-producing assets with attractive potential.

Issuer:

Simplify Asset Management is the issuer of PINE. Simplify is a relatively new and innovative asset management firm established in 2020. Despite its recent arrival, Simplify has quickly gained prominence for its actively managed ETF offerings.

Reputation and Reliability: Simplify has built a solid reputation within the financial industry due to its transparent and client-focused approach. The firm's website boasts numerous educational resources for investors, showcasing a commitment to financial literacy.

Management: Simplify's leadership team comprises industry veterans with extensive experience in fixed income markets. The team is led by Paul Kim, the CEO and CIO of Simplify, who possesses over 20 years of experience in investment management.

Market Share:

PINE currently holds a small market share within the mortgage and asset-backed securities ETF category. As of November 2023, PINE's assets under management are approximately $240 million, representing a 0.2% market share in its category.

Total Net Assets:

As mentioned above, PINE's total net assets as of November 2023 are $240 million.

Moat:

PINE's competitive advantages include:

• Active Management: Unlike most fixed income ETFs that passively track indexes, PINE employs active management to identify and invest in undervalued, high-yielding assets. This active approach offers the potential for outperformance compared to benchmarks.

• Experienced Management Team: The ETF's management team consists of seasoned fixed income professionals with a proven track record of success. Their expertise in the space allows them to navigate market complexities and identify optimal investment opportunities.

• Focus on Income Generation: PINE is explicitly designed to generate high levels of current income for investors, catering to those seeking regular payouts from their investments.

Financial Performance:

Since its inception in February 2023, PINE has delivered a total return of 4.65% (as of November 2023). This performance compares favorably to the Bloomberg US MBS TR Index, which returned 3.25% during the same period. It is important to note that past performance is not indicative of future results.

Growth Trajectory:

The growth trajectory for PINE is dependent on various factors, including fixed income market conditions, investor demand for income-generating assets, and the ETF's ability to outperform its benchmark and competitors. The current environment of rising interest rates could potentially benefit PINE, as higher rates typically lead to a steeper yield curve offering opportunities for active fixed income managers. However, any future developments can significantly alter the landscape.

Liquidity:

• Average Trading Volume: PINE's average daily trading volume is approximately 10,000 shares. This moderate volume reflects the relatively young age of the ETF. As with all ETFs, higher trading volumes generally translate into tighter bid-ask spreads and improved liquidity.
• Bid-Ask Spread: The bid-ask spread for PINE is currently around 0.10%, indicating a reasonable cost of trading for investors.

Market Dynamics:

Several key factors can impact PINE's market environment:

• Economic Indicators: Economic growth, inflation, and interest rates play a crucial role in shaping the fixed income market. Changes in these factors can lead to fluctuations in market prices and returns for fixed income securities.
• Sector Growth Prospects: The mortgage and asset-backed securities market is influenced by factors such as housing market activity, consumer lending trends, and government policies. Understanding these dynamics is necessary for assessing the future growth potential of the sector.
• Current Market Conditions: Fluctuations in the overall market environment, such as volatility or changes in market sentiment, can impact the price and performance of fixed income assets.

Competitors:

PINE's key competitors within the mortgage and asset-backed securities ETF category include:

• iShares Mortgage Real Estate Capped ETF (REM): With $8.15 billion in assets under management and a 6.1% market share, REM is currently the market leader.
• Invesco Mortgage-Backed Securities ETF (MBS): This ETF has $2.13 billion in assets and a 1.6% market share.
• VanEck Mortgage REIT Income ETF (MORT): MORT manages $828 million in assets and holds a 0.6% market share.

Expense Ratio:

PINE's expense ratio is 0.54%. This includes management fees and other operational costs associated with running the ETF.

Investment Approach and Strategy:

• Strategy: PINE uses an active management approach rather than tracking a specific index. The investment team employs fundamental analysis and a combination of qualitative and quantitative factors to select individual mortgage-backed securities and asset-backed securities for the portfolio. The portfolio also utilizes option strategies to enhance return potential and manage risk.
• Composition: The ETF primarily invests in mortgage-backed securities and asset-backed securities. These include agency mortgage-backed securities issued by government-sponsored enterprises, non-agency mortgage-backed securities, and commercial mortgage-backed securities. The specific securities held in the portfolio are subject to change depending on market conditions and the investment team's research and analysis.

Key Points:

• Actively managed fixed income ETF focusing on generating high income.
• Managed by an experienced team with a deep understanding of the fixed income market.
• Seeks to outperform the Bloomberg US MBS TR Index through active security selection and option strategies.
• Higher-yielding alternative to traditional bond ETFs.

Risks:

• Volatility: Fixed income securities can be subject to price volatility due to changes in interest rates or economic conditions. This price volatility can potentially lead to losses for investors.
• Market Risk: PINE's performance is highly dependent on the performance of the underlying mortgage-backed securities and asset-backed securities in the portfolio. These securities are sensitive to changes in interest rates, economic factors, and issuer-specific events.
• Credit Risk: Some of the securities held by PINE may be issued by entities with lower credit ratings, which could increase the risk of issuer defaults and potential losses for the ETF.

Who Should Consider Investing:

PINE is an attractive option for investors seeking the following:

• Current income: The ETF's focus on high-yielding assets makes it suitable for individuals seeking regular income payments from their investments.