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

 The strategy's inexperienced portfolio management team drives the strategy's Below Average People Pillar. The fund's assessment garners an Average Process Pillar rating. The strategy's parent organization is industry standard, albeit with some strong attributes like modest portfolio manager turnover, but is held back by an unfavorable lineup success ratio. This earns the firm an Average Parent Pillar rating.

Analyst Rating

Morningstar's style-agnostic investment process evaluation looks for strategies that should be able to outperform their Morningstar Category index on a risk-adjusted basis over time. Simplify Enhanced Income ETF earns an Average Process Pillar rating.    The primary contributor to the rating is the firm's five-year retention rate of 100% over the period. The size of the portfolio management team also supports the rating. With three portfolio managers, the fund is reasonably well-resourced. Lastly, the process is limited by the experience of the management team, which averages four years at this fund.

 The investment strategy as stated in the fund's prospectus is as follows: 


The investment seeks to provide monthly income.  The fund invests primarily in interest income producing U.S. Treasury securities such as bills, notes, and and bonds and fixed income ETFs that invest primarily in U.S. Treasuries. The fund targets an average securities portfolio duration of two years or less but does not restrict individual security maturity. The fund adviser expects to gain exposure to certain options markets by investing up to 25% of its assets in a wholly owned subsidiary of the fund organized under the laws of the Cayman Islands.

 This strategy has a 9.8% 12-month yield, higher than its average peer's 3.3%. Higher yields tend to indicate higher credit risk.

Average

Process

Simplify Enhanced Income 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 limited by the experience of the management team, which averages four years at this fund. The number of months that the management team has been running this vehicle together also holds the rating back. Since this is a newly incepted product, more time is needed to monitor the team's capability at executing the strategy.


Paul Kim brings nine years of listed portfolio management experience to the team. The average Morningstar Rating of the strategies they currently manage is 1.8 stars, reflecting below-average risk-adjusted performance relative to category peers. The team is small, with only three other supporting listed managers, and inadequately equipped. Together, the three only have an average of four years of listed portfolio management experience. None of the managers here invest any money in the strategy, which is disappointing, as such investments help align managers' interests with fundholders.

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 Enhanced Income ETF

HIGH seeks to provide monthly income by holding a short-term portfolio of income-producing US Treasurys and utilizing an option spread writing strategy.

HIGH invests in t-bills and option spreads. The strategy aims to generate strong income at low risk and volatility. An overview of the fund follows.

HIGH: Unique Income ETF Focusing On Option Spreads, 9.4% Distribution Yield

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I'm Parking My Cash In HIGH And SGOV, And They're Paying Handsomely

The Simplify Enhanced Income ETF aims to generate high income from selling option spreads on equity and fixed income indices. However, the actual portfolio differs from how the fund is marketed. The HIGH ETF has performed well, returning 7.0% in the past year with low volatility, but investors should monitor its portfolio closely.

HIGH: Enhanced Income From Option Spreads

The Simplify Enhanced Income ETF is an exchange-traded fund that employs a strategy of generating monthly income through the trading of short-dated put or call options spreads on equities. The fund operates more like a hedge fund, with a wide mandate and the ability to take long or short positions via its option spreads. HIGH has not performed impressively in 2023, generating only a 2% excess spread over T-Bills with a 3.46% annualized volatility.

HIGH: A Hedge Fund In Disguise, Has Not Impressed In 2023

Simplify Enhanced Income ETF aims to generate 10% annual income yield through a combination of bonds and options plays. The fund's performance has shown slow but steady growth, with uncorrelated returns to stocks and bonds. The fund makes a lot of high probability small plays that help it generate income without suffering any loss of NAV (so far).

HIGH: Behaving As Expected So Far

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Simplify Enhanced Income ETF is an actively managed fund that uses options plays to generate income, selling option credit spreads rather than covered calls. The fund targets a delta range of 25-30 for its options plays, indicating a low probability of failure, but also a smaller payout due to the cheaper nature of options with low deltas. The fund currently has most of its assets in short-term treasuries yielding about 5.25%, and uses this as collateral for its options plays, aiming for a total yield of close to 10%.

HIGH: A Fund That Generates Income From Selling Option Spreads

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