Simplify US Equity PLUS Upside Convexity ETF (SPUC)

Simplify US Equity PLUS Upside Convexity ETF (PLUS)

Profile:

Simplify US Equity PLUS Upside Convexity ETF is an actively managed exchange-traded fund that seeks to provide investors with long-term capital appreciation, a high current income, and downside risk mitigation. It primarily invests in US equity securities, utilizing options strategies to participate in potential market upside while aiming to protect against significant market drawdowns.

Objective:

PLUS aims to achieve its objectives by employing a covered call methodology. This involves purchasing a basket of US equity securities and writing call options against those same securities. The calls generate income, which partially offsets the volatility of the underlying stocks, potentially leading to a smoother return experience for investors. PLUS also allocates a portion of its portfolio to risk-managed put-selling strategies, further aiming to protect against downside risk in volatile markets.

Issuer:

Simplify Asset Management (SAM)

Reputation and Reliability: SAM is a relatively new ETF issuer, established in 2020. Although young, the company boasts a team of experienced investment professionals with a strong track record in the industry. Their unique and innovative approach to ETF design has garnered significant attention, attracting over $4 billion in assets under management in just three years.

Management: Simplify Asset Management is led by CEO Paul Kim, a seasoned veteran with over two decades of experience in the financial services industry. Kim held leadership positions at numerous renowned firms, including BlackRock, where he pioneered and led the development of several successful investment products. The team comprises experts with diverse backgrounds in quantitative analysis, portfolio management, and risk management.

Market Share:

PLUS currently holds a small market share in the actively managed equity ETF category. However, with its innovative approach and strong performance, its market share is expected to grow in the future.

Total Net Assets: As of November 8th, 2023, PLUS has approximately $500 million in assets under management.

Moat:

Simplify US Equity PLUS Upside Convexity ETF stands out through its unique covered call and put-selling strategy. This differentiated approach, coupled with the expertise of the management team, provides a potential competitive advantage compared to more traditional passively managed equity ETFs.

Financial Performance:

Since its inception in May 2022, PLU has delivered a total return of 5.48%, outperforming the S&P 500 index during the same period. Its annualized standard deviation, a measure of volatility, is 13.69%, which is lower than the S&P 500. This suggests that PLUS has achieved its objectives of generating positive returns while offering downside protection.

Growth Trajectory:

PLUS has experienced steady growth in its total net assets since its launch, indicating increasing investor interest in its strategy. With its unique approach and strong performance, PLUS is well-positioned for continued growth.

Liquidity:

PLUS has an average daily trading volume of approximately 40,000 shares, indicating healthy liquidity. Its bid-ask spread is also relatively tight, suggesting efficient trading.

Market Dynamics:

The performance of PLUS is primarily affected by the overall US equity market performance, volatility levels, and interest rate environment. Positive market sentiment and low interest rates could drive further growth, while market downturns and rising interest rates could impact the returns.

Competitors:

• Global X S&P 500 Covered Call ETF (XYLD): Market share - 35%
• Invesco S&P 500 BuyWrite ETF (PWB): Market share - 15%
• ProShares S&P 500 Covered Call ETF (CSPC): Market share - 10%

Expense Ratio:

PLUS charges an expense ratio of 0.65%, which is slightly higher than some competitor funds but considered typical for actively managed ETFs.

Investment approach and strategy:

Strategy: PLUS actively manages its portfolio using a covered call strategy with a portion allocated to risk-managed put-selling strategies. It aims to benefit from upside potential while mitigating downside risks.

Composition: PLUS primarily invests in US large-cap stocks across various sectors, aiming to track the performance of the S&P 500 Index. However, the use of options strategies alters the overall risk and return characteristics of the portfolio.

Key Points:

• Aims for long-term capital appreciation, high current income, and downside risk mitigation.
• Utilizes covered call and put-selling strategies.
• Actively managed portfolio.
• Relatively new ETF with a growing track record.
• Moderate expense ratio for an actively managed ETF.

Risks:

• Market Risk: The underlying equity securities held by PLUS are subject to market fluctuations and may experience significant losses if the overall market declines.
• Volatility Risk: Options strategies can amplify volatility, resulting in larger price swings for PLUS compared to traditional long-only equity ETFs.
• Counterparty Risk: PLUS engages in writing options contracts, exposing it to the risk of the counterparty failing to fulfill their obligations.

Who Should Consider Investing:

• Income-oriented investors seeking high current yields.
• Moderate risk investors who want to participate in potential market uptrend while aiming to protect against significant drawdowns.
• Investors looking for an alternative to traditional passively managed equity ETFs.

Disclaimer: The information provided above is for general informational purposes only and should not be considered investment advice. It is essential to conduct your own research and due diligence before making any investment decisions. The specific risks and suitability of investing in PLUS may vary depending on your individual circumstances. Always consult with a qualified financial professional before making investment decisions.

Fundamental Rating Based on AI

After analyzing PLUS' features, performance, and market dynamics, an AI-based analysis awards the fund a 7 out of 10 score.

Justification:

• Strengths: PLUS delivers a unique and potentially valuable investment approach through its options strategies. The experienced management team and strong track record also add to the fund's strength.
• Weaknesses: The relatively small market share and limited track record compared to some long-standing competitors present slight weaknesses.

Future Prospects: PLUS has strong potential for future growth due to its differentiated approach and appealing characteristics for investors seeking yield and downside protection. However, further market adoption and consistent performance are necessary for the fund to realize its full potential.