Simplify’s CYA Becomes Casualty of Bad Bets

The tail-risk strategy banked on Black Swan events that never occurred.

Jeff_Benjamin
|
Wealth Management Editor
|
Reviewed by: etf.com Staff
,
Edited by: James Rubin

For more proof that not all ETFs are of the buy-and-hold variety, the Simplify Tail Risk Strategy ETF (CYA) announced plans to liquidate after suffering a 99.8% decline since its September 2021 start.

CYA, which clings to about $1.7 million in assets as it turns out the lights, was a bet against the economy and financial markets that failed to come to fruition.

The closure was widely anticipated even after the ETF issuer’s desperate move last month to deploy a 1-for-20 reverse share price split to prevent the ETF from getting lost in the sofa cushions.

In many ways, the plight of CYA reflects the modern ETF industry where getting attention means pushing the limits with strategies that are tailored to specific circumstances or moments in time.

“There’s a lot of stuff being thrown at the wall to see what sticks, and it’s no coincidence that last year we saw the second-most ETF closures ever,” said Eric Balchunas, ETF analyst at Bloomberg Intelligence.

Balchunas describes homerun-seeking strategies like CYA as “not doing 60/40 stuff,” but that doesn’t mean such strategies aren’t an important part of an evolving ETF marketplace.

For ETF issuers, especially smaller firms like Simplify ETFs with $3 billion under management, Balchunas said it’s often about hanging on for as long as possible and hoping to not fold at the wrong time.

“We have seen cases where funds were closed right before the sun came out on the strategy,” he said.

CYA Falls Amid Good Economic News

Lois Gregson, senior ETF analyst at Factset, said Simplify launched CYA by following all the economic logic that the U.S. economy appeared headed for a downturn, or at least a rough patch.

“It makes sense that CYA lost a substantial amount of money in a market that did not experience a tail risk event,” she said. “It is easy to make sense of a product like CYA when looking at the market in a rear-view mirror. Unfortunately, we cannot invest that way.”

Simplify, which did not respond to multiple requests for comment, has been creative in its past offerings.

For example, during the final trading days of last year, investors in the Simplify Interest Rate Hedge ETF (PFIX) received a giant capital gains distribution equal to half the fund’s net asset value.

The unorthodox move of essentially cutting the PFIX assets in half helped produce a 5.6% gain last year and a 26% gain so far this year.

Jeff Benjamin is the wealth management editor at etf.com, responsible for coverage related to the financial planning industry. This includes writing, hosting podcasts, webinars, video interviews and presenting at in-person events.


Jeff is a veteran journalist with more than 30 years’ experience covering the financial markets. He has won more than two dozen national and regional awards for his reporting. He most recently worked as a senior columnist at InvestmentNews where he wrote about investment products and strategies, as well as the broader financial planning industry. Prior to that, Jeff worked as an analyst at Cerulli Associates where he researched and wrote reports on the alternative investments industry. Jeff also worked as a money management reporter at Dow Jones Newswires, where he covered the mutual fund industry.


Based in North Carolina, Jeff is a former Marine and has a bachelor’s degree in journalism from Central Michigan University.