The combination of a middling Process Pillar rating and a Below Average People Pillar rating limit  Simplify Aggregate Bond ETF to a Morningstar Medalist Rating of Neutral.  The portfolio maintains a cost advantage over competitors, priced within the second-lowest fee quintile among peers.  

 The strategy's management team is about as experienced as others, but due to other weaknesses, the strategy earns a Below Average People Pillar. The strategy earns an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a substantial underweight position in corporate bonds and has an overweight in debt with one- to three-year maturities compared with category peers. The strategy's parent organization is industry standard, albeit with some strong attributes like continuity among portfolio managers, but is held back by an unfavorable lineup success ratio. This earns the firm an Average Parent Pillar rating.

Analyst Rating

Morningstar's evaluation of this fund's process seeks to understand management's investment philosophy, and whether it has been applied consistently over time and can add value across the market cycle. Simplify Aggregate Bond ETF earns an Average Process Pillar rating.    The leading factor in the rating is the firm's five-year retention rate of 100% over the period. The size of the portfolio management team also reinforces the process. With three portfolio managers, the fund is reasonably well-resourced. Lastly, the process is limited by the experience of the management team, which averages five years at this fund.

 Compared with other funds in the Intermediate Core Bond Morningstar Category, this fund takes on significantly lower credit risk. But in terms of long-term interest-rate sensitivity, it hews closely to its average peer over the past few years. Opening the analysis to additional factors, the portfolio has displayed biases over time, whether towards or away from certain fixed-income instruments. Compared with the average strategy in the category, the managers have been substantially underweight corporate bonds in recent years. In the latest month, the strategy has also relatively underweighted corporate bonds compared with Morningstar Category peers. Additionally, there's been a bias towards debt with one- to three-year maturities over the past few years. Compared with category peers, the strategy had more exposure to debt with one- to three-year maturities in the most recent month. Finally, during the past few years, the fund leaned away from A rated bonds. In recent months, the strategy also had less exposure to A rated bonds compared to its peers.

 This strategy has a 10.8% 12-month yield, higher than its average peer's 3.6%. Higher yields tend to indicate higher credit risk. But that isn't always the case. Over the past 12 months, the average yield of the fund has been higher than the average yield of its Morningstar Category peers. The portfolio's average surveyed credit quality is on par with peers, with both the fund and the average being rated A.

Average

Process

Simplify Aggregate Bond ETF earns a Below Average People Pillar rating. The team benefits from the firm's five-year retention rate of 100%. However, the rating is weakened by the experience of the management team, which averages five years at this fund. The turnover of its management team also holds the rating back. The fund last saw a manager change six months ago.


The strategy is backed by Paul Kim, the longest-tenured manager, who has been a listed portfolio manager for nine years. The average Morningstar Rating of the strategies they currently manage is 1.8 stars, demonstrating underwhelming risk-adjusted performance. The team is small but adequately equipped, with two other supporting listed managers. Together, the three boast five years of average listed portfolio management experience.

Below Average

People

In a competitive industry, Simplify Asset Management doesn't differentiate itself enough, leading to an Average Parent Pillar rating. Portfolio management turnover has been minimal at the firm since the firm's inception. Long-term stability signals a strong investment culture. The firm's lineup has had discouraging initial results. Its three-year risk-adjusted success ratio is 0%, indicating that of the strategies with a three-year track record, 0% have both survived and beaten their respective category median on a risk-adjusted basis. A low success ratio not only indicates weak performance but also provides insight into a firm’s discipline around investment strategy and product development. With an average three-year Morningstar Rating of 1.8 stars, the risk-adjusted performance of Simplify Asset Management's open-end and exchange-traded funds falls short of competitors.

Parent

Simplify Aggregate Bond Plus Credit Hedge ETF

AGGH is a fund-of-funds that seeks total return by providing exposure to US investment-grade bonds combined with several credit hedging strategies. The fund is actively managed.

Simplify Aggregate Bond ETF is an actively managed investment-grade bond ETF. AGGH uses derivatives and leverage and has a high turnover. An overview of the fund follows.

AGGH: Aggressive Actively Managed Bond ETF, Uncompelling Value Proposition

Simplify Aggregate Bond ETF offers bond exposure with reduced risk through hedging mechanisms and active management. The AGGH ETF's portfolio includes bond ETFs, hedging mechanisms such as covered calls and protective puts, and credit default swaps. AGGH has outperformed its benchmark and offers a high distribution yield, but its complexity and high portfolio turnover may not appeal to all investors.

AGGH: An Interesting Hedged Core Bond Fund

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Simplify Provides Estimated Capital Gain Distribution Information for 2023

Simplify Aggregate Bond ETF aims to replace traditional core bond ETFs by using tools such as leverage, options, and futures to enhance yield. The fund's complex composition of ETFs and derivatives comes with a significant amount of leverage and risk involved. AGGH has beaten the index on several important measures, including total return and standard deviation.

AGGH: Complexity Is Paying Off For Now

Simplify Aggregate Bond PLUS Credit Hedge ETF is marketed as a core bond fund with a credit hedge overlay. However, the fund's holdings and trading suggest it is an unconstrained fixed income hedge fund that trades based on the manager's views on duration and credit. The fund's distribution yield of 10%+ may not be sustainable and does not appear to be supported by income and earnings.

AGGH: Not The Aggregate Bond Fund That Is Advertised

Simplify Aggregate Bond PLUS Credit Hedge ETF uses a complex strategy involving bonds, covered calls, protective puts, option spreads, and credit default swaps. The fund's performance has been slightly better than its benchmark during the bond bear market, but its protection measures could drag its performance down during a bull market. The fund pays monthly dividends with a current annual yield of almost 11% boosted by options selling.

AGGH: A Bond Fund That Comes With Covered Calls And Hedging

Simplify Asset Management today launched two new strategies providing exposure to diversified investment-grade bonds and high-yield corporate debt with unique credit hedge overlays. The Simplify Aggregate Bond PLUS Credit Hedge ETF (AGGH) and the Simplify High Yield PLUS Credit Hedge ETF (CDX) began trading on the NYSE on February 15.

Simplify Launches 2 Fixed Income ETFs Focused on Hedging Credit Risk

The two funds launch as spreads on corporate debt begin widening.

Simplify Debuts 2 Credit-Hedged Bond ETFs

NEW YORK--(BUSINESS WIRE)--Simplify launches AGGH and CDX ETFs, first-of-their-kind fixed income funds providing investors with unique credit hedge overlays

News for Simplify Aggregate Bond Plus Credit Hedge ETF ETF (AGGH)