If You Invested in Simplify High Yield ETF (CDX)

Simplify High Yield ETF (NYSE Arca: CDX) is an exchange-traded fund that has been known as the Simplify High Yield PLUS Credit Hedge ETF and was renamed Simplify High Yield ETF effective February 10, 2025. The fund is part of the Simplify ETFs lineup managed by Simplify Asset Management Inc., a Registered Investment Adviser. According to available disclosures, the fund involves the use of derivatives and options-based strategies and is subject to the risks associated with those instruments, as well as the general risks of investing in fixed income securities.

The ETF is actively managed, and its strategy depends on the judgments of its advisers. Disclosures note that the fund is new and has a limited operating history, which means there is a shorter track record for investors to review. The investment objective disclosed for the fund is to seek capital appreciation, and the fund’s approach involves exposure to fixed income securities along with derivatives and an option overlay.

Information provided about the fund emphasizes that an investment in the ETF involves risk, including possible loss of principal. The use of derivative instruments introduces risks that may differ from investing directly in traditional securities. These include the possibility that a counterparty to a derivative transaction may not fulfill its contractual obligations, the risk of mispricing or improper valuation, and the risk that changes in the value of a derivative may not correlate perfectly with the underlying asset, rate, or index.

The disclosures also highlight that derivative prices can be highly volatile and may fluctuate substantially over short periods. When leverage is employed, such as borrowing money to purchase securities or using options, this can increase expenses and magnify gains or losses. The fund’s investment in fixed income securities is subject to credit risk, where a debtor may default, and prepayment risk, where an obligation is paid earlier than expected, either of which can affect the fund’s share price and total return. Typically, increases in interest rates are associated with declines in bond prices, which can cause the fund to lose value.

The fund uses an option overlay that is intended to improve performance, but disclosures clearly state that there is no guarantee this will occur. As a buyer of put or call options, the fund can lose the entire premium paid for an option if it is not exercised. In addition, securities and options that trade in over-the-counter markets may trade less frequently and in more limited volumes, which can increase volatility and liquidity risk.

In a prior announcement, Simplify Asset Management Inc. stated that the fund’s investment objective is to seek capital appreciation and described the firm’s broader approach as using options-based strategies that account for real-world investor needs and market behavior. The firm notes that these strategies are designed to make use of the non-linear characteristics of options to pursue tailored portfolio outcomes, although there is no assurance that any specific outcome will be achieved.

Fund communications also stress the importance for investors of carefully reviewing the prospectus or summary prospectus, which contains detailed information on investment objectives, risks, charges, and expenses. These documents are described as essential reading before making an investment decision in the ETF.

In a separate disclosure, Simplify Asset Management Inc. announced a restatement of the net asset value (NAV) per share for the fund for certain dates in July 2023. The restatement was attributed to a missing dividend accrual from a swap holding. The announcement provided revised and original NAV figures for those dates and identified the adjustment as a result of that specific issue.

Simplify Asset Management Inc. describes itself as a Registered Investment Adviser founded in 2020 that focuses on options-based strategies for exchange-traded funds. The firm states that its goal is to help advisors address portfolio challenges by using strategies that reflect investor needs and observed market behavior, while incorporating the characteristics of options into fund design.

Key characteristics and risk considerations

• Fund type: Exchange-traded fund listed on NYSE Arca under the symbol CDX.
• Manager: Managed within the Simplify ETFs family by Simplify Asset Management Inc., a Registered Investment Adviser.
• Investment objective: Disclosed objective is to seek capital appreciation.
• Strategy elements: Use of derivatives, leverage, and an option overlay, with associated risks described in fund communications.
• Risk profile: Subject to risks of derivatives, leverage, fixed income credit and prepayment risk, interest rate risk, and liquidity and volatility risks in over-the-counter markets.
• Operating history: Described as new with a limited operating history.

Investor disclosures

Fund materials emphasize that investors should carefully consider investment objectives, risks, charges, and expenses before investing. They note that a prospectus or summary prospectus contains this and other important information and should be read thoroughly. The disclosures also state that past performance does not guarantee future results and that investment in the fund can result in loss of principal.

Simplify ETFs are described as being distributed by Foreside Financial Services, LLC, and the disclosures state that Foreside and Simplify are not related companies.

Historical NAV restatement

The NAV restatement announcement for July 2023 provides an example of how operational and valuation matters can affect reported NAVs for an ETF. In this case, the adjustment was tied to a missing dividend accrual from a swap holding, and revised NAVs were published for specific dates. Such events are part of the fund’s historical record and illustrate the importance of accurate valuation processes in funds that use derivatives.

Summary

Simplify High Yield ETF (CDX) is an actively managed exchange-traded fund within the Simplify ETFs lineup, associated with options-based and derivative strategies and an objective of seeking capital appreciation. Available disclosures focus heavily on risk factors, the role of derivatives and leverage, and the need for investors to review the fund’s prospectus to understand its structure and potential risks before investing.