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SPYC -


mobitymosely
Posts: 1
Topic starter
(@mobitymosely)
New Member
Joined: 7 months ago

BigERN,

I've just come across SPYC (Simplify ETFs U.S. Equity Plus Convexity, 0.28% fee), launched last fall. (Click on "Investment Case" for a PDF showing its strategy and backtested performance: https://www.simplify.us/etfs/spyc-simplify-us-equity-plus-convexity-etf#investmentCase )

It holds 98% in an S&P 500 ETF, and 2% in put and call options, "designed to create a convex equity payoff, with the hopes of increasingly protecting capital as market drawdowns deepen and accelerating performance as market rallies strengthen."

I'm wondering how much of a free lunch this could really be. Its downside risk example shows it performing similarly to 60/40 stocks/bonds during the March 2020 crash (i.e. losing only 65% as much) but performing similarly to 100% stocks during the ensuing recovery!

Would such a strategy likely perform similarly during more market crashes? Would it underperform too much in sideways markets? Or low-volatility melt-ups?

What do you think? Thanks for your help!

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1 Reply
earlyretirementnow.com
Posts: 250
(@earlyretirementnowcom)
Member
Joined: 6 years ago

It's an interesting concept. But there's no free lunch. For the mitigation on the downside, you'll pay a premium and lose some of the upside. But if it truly works like a 60/40 on the downside and 100/0 on the upside and you only give up around 1% p.a. this would be a good hedge against sequence risk.

But we'll need to see if this really works in the next market meltdown. These kinds of products are always launched after the big crash and it may take a while until this sort of strategy becomes relevant again.

And as you mention: a sideways-moving market would be bad for this fund.

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