Quarterly Market & Strategy Update - April 2026

Añadido: 2026-05-22

[00:00:06]Hi everyone. Um we are back with the quarterly webinar uh for our market and strategy update. Uh I'm going to be hosting today alongside Mike Green who has um not been at the last couple. He's a busy guy. He's running around doing very important work. So we're excited to have Mike back with us today. Uh we'll give you guys an update per usual on the state of simplify our business some new fun launches as well. Um as a reminder um today's uh webinar should be taken as uh educational andformational purposes only uh not to be construed as investment advice. Um also a little housekeeping item. Um we have the Q&A available throughout today's webinar. Um if things are super relevant uh we might be able to field some of those questions as we're going. Otherwise, we'll save them towards the end. So, if you guys have any questions, comments, etc., please post those in the chat. Um, and Brian uh has joined us per usual and he'll be kind of combing through those.

[00:01:06]So, without uh further ado, um I will share my screen and we can get started.

[00:01:15]Mike, will you let me know when you can see my screen?

[00:01:18]>> I can see it.

[00:01:19]>> Cool. Hey, that's Mike and I just in case you guys already forgot what we look like. Um let's jump ahead here. Um so before we get into a little bit of the macro economic update, um wanted to give you guys a state of simplify. Um so as we rounded out the first quarter of this year, AUM stands a little above 13 billion 13.2 as of March 31st. Um and we now have over 40 available strategies all in daily liquid ETFs, no K1s. Uh we'll talk about some of those today, of course. Um, and we continue to see kind of growth in assets, not only across our business, but in a lot of our flagship strategies. So, I would say the the first quarter of this year, we uh passed several strategies that now have a four-year anniversary. Uh, we passed another strategy that has a three-year anniversary. So, a lot of these longer term strategies that we've had um live that have delivered category leading returns, which you'll see on the right hand of this slide. Um, our core bond fund just passed its four-year anniversary as well as our managed futures CTA. Two of our flagships, both morning star rated with five stars. So, very proud of those track records. Um, and then you'll see hard, which is our commodity strategy, just passed its three-year and earned a four-star morning star rating. So, obviously commodities and alternatives are very topical. We'll dive into that today.

[00:02:38]And then pink, which is our uh active health care strategy uh subadvised by Mike Taylor uh continues to be category leading um and is becoming more relevant as healthcare as a sector. Um it's kind of and I would say a little bit of a turning point and so we've seen some strong flows into that over the last few months and continues to have a four-star rating from Morning Star. And then lastly, which I also think is quite relevant, maybe not as much over the last few days as equities have rallied, uh, but a lot of investors looking for ways to be cautious and protective within their equity allocations. And our hedged equity solution is absolutely category leading. Um, and you'll see here, fourstar morning star rating. Um, moving back to the lefth hand side of the slide here, wanted to highlight a couple of our newest strategy launches.

[00:03:23]We're always innovating, always taking feedback from our investors and from the marketplace um on what really is going to help move the needle in portfolio construction. And so two of the strategies you'll see here are examples of that brought to life in just the first quarter. First and foremost, we have our CCOM CCOM, which is a Chinese commodity strategy. Many of you are probably listening and I said the word China and are probably thinking, "Wow, who's allocating to Chinese commodities?" This is actually a very unique return stream um that uh we launched on behalf of a large institutional allocator that is using this within their hedge fund sleeve multi- strategy um diversifying type uh part of their portfolio to really think about how they can access what is otherwise inaccessible which is onshore China commodities to help bring down the overall portfolio of all in their portfolio. This is another extension of our existing partnership with Altus Partners who is a futures adviser on CTA and hard again the two strategies you see that are highly rated by Morning Star some of our longer standing flagships um and so we continue to build out that partnership with Altus. So, SECCOM really interesting. Um, like I said, I don't anticipate this to resonate with the masses, but if you are looking for really unique source of risk and return um definitely take a look at that. An extension of some of the futures trading um is uh our SDMF strategy. This is another extension within trend following uh very differentiated from CTA. Um, and if you guys are familiar with uh DBI, who is a model provider for one of the largest ETFs in the marketplace and trend following, uh, we partnered up with them earlier this year. Super exciting opportunity to expand on a track record that was already um, really exciting, I would say, from a risk and return perspective, but we um, enhance it further by adding some tax alpha or more tax intelligent type investing with a low stated expense ratio. So, we'll come back to that um in today's discussion.

[00:05:26]So, this is kind of the state of the business. Wanted to kind of kick off with that so you guys know where we stand. Um and then in typical fashion um I will hand it over to Mike to share his thoughts on the state of the markets and then we'll dive into some more of our fund specifics here. So, Mike, feel free to take it from here.

[00:05:44]>> Fantastic. Before we go on to the next slide, actually I just wanted to comment on SECCOM, which was initiated as a reverse inquiry from a client. Um, but is an area that candidly uh plays into some of the national security stuff that I'm involved with. Um, one of the key advantages there is is that it is adding effectively western demand or western pricing to Chinese commodities that have historically been able to be controlled uh in a non-market fashion. um this actually provides tremendous diver diversification.

[00:06:15]It also really creates an interesting opportunity to try to inject some market pricing into those commodities potentially facilitating um regrowth of US resources in those same components.

[00:06:27]So it is both a hedge and it also plays into some of the national security components that we've talked about in the past. It's a product I'm actually really excited about and incredibly excited that the Altus team was able to make it happen for us. Okay, so let's jump into what happened in the quarter.

[00:06:42]The first thing I would just highlight is just going from Q4 where basically the question was does gold represent safety? Do equities represent safety?

[00:06:50]Um, you know, do international stocks represent diversification? The quick answer to all of that was no. Um, at the end of the day, they're risk assets.

[00:06:58]Most of them are financed in one way, shape, or form. And so when you experience the type of disruption that we saw in the first quarter of this year with the um US Iran conflict and the subsequent closing of the Straits of Hormuz, we basically saw all of them sell off. It's just a really important reminder that you know there is no such thing as a quote unquote safe asset in an environment in which there's significant disruption. Uh the first quarter was a nice reminder of that.

[00:07:26]Candidly a little bit welcome. Um now of course we're seeing the other side of that as risk on across the globe is sending thing sending almost everything higher in defiance by the way of many of the macro indicators particularly em stocks which are being powered by technology in Korea in particular um are one of those areas you just kind of have to shake your head at at this point. Um the you know the EIA and the IMF have both come out and said that the hit to many emerging markets at this point looks like it's on the magnitude of 2 to 3% of GDP which is an astonishing event.

[00:08:02]You've got fuel riots in the Philippines. Um uh Ireland is uh currently shut down in a general strike um around some of the same issues. This is this is turning into something quite substantial. But as we have seen over and over again over the past several years, markets are largely shaking it off. I continue to argue that that is a combination of a market that is increasingly inelastic to flows. And so when those flows come in, prices move higher. Equity markets have managed to lead most of this move so far. And as we've all seen, the S&P has hit a new all-time high.

[00:08:40]Um, when we talk about oil, let's go to the next slide. Hey Mike, I have a quick question actually because this brings up something I feel like that's kind of hit the headlines in the last >> few weeks and then really last year with the tariff tantrum like this whole uh notion of buy the dip, right? I think a lot of us have grown up in this generation of investing where like there will always be something to kind of put a floor on on markets and you know whether it's flows like we saw some of the quarter end rebalancing that maybe deviated flows back into equities like do you have a thought on if this is kind of a naive notion for investors to have because it continue at least from my opinion continues to keep playing out that you can just buy the dip.

[00:09:22]>> Well, it's certainly going to be the case. I mean that that unfortunately has been part of my thesis is is that it really doesn't reflect the underlying fundamentals. It more reflects the flows and there's two factors that play through in that. Um one is just the general increasing inelasticity of the market. Meaning the market is becoming more and more like a commodity like gasoline. Um if you want to show up and buy, you got to find somebody to sell it to you. And that's harder and harder to do with a larger fraction of the market held passively. Um that resilience of course then feeds through to everything else right if equities are going higher then well it must be debasement therefore the the gold market should move higher etc. Um we're broadly seeing that sort of behavior unfortunately and I I would suggest that it is one of those weird things that will keep going until it stops. Um un >> so buy the dip until it doesn't work anymore.

[00:10:13]>> Yeah. And and that's going to be the interesting question right and we saw elements of this in 2022.

[00:10:19]the natural impulse for people was to buy the first dip and then buy the second dip and by the time we got to the fourth dip people seemed exhausted and then of course we took off um as everybody remembers. So you know this continues to be in my opinion a story of the way that we choose to invest rather than the actual fundamentals behind it.

[00:10:39]Um you know we can point to some areas like uh small caps and the expectations for earnings growth that are embedded there. those seem very much at odds with what we are likely to deliver. But you know that's my narrative and it's worth exactly zero in terms of market behavior. So I think it's really important to recognize that this is a largely mechanical feature that is you know we see the evidence of it in the behavior of markets. The unwinds have really hammered uh the most short stocks. We've seen kind of crazy stuff.

[00:11:14]I'm sure you caught Allirds up 900% on pivoting from being a shoe company to an AI company.

[00:11:20]>> I actually I was I bought Allirds back in 2011 when they had like first come to market and I got a hole in one of my shoes and I never bought them again. But kind of makes sense that they eventually had to sunset their business. But yeah, I mean talk about a radical flip in a business model. It's a good reminder you can always reinvent yourself.

[00:11:38]>> You can always reinvent yourself. I'm hoping to come back as as a blonde. Uh the uh the the long and short of it though is is that you know we are seeing a lot of evidence basically that people cannot stand in front of that. You can't maintain short positions. The violence of these moves and the realized levels of volatility are pretty extreme. Um on the flip side of it, you know, as as uh many people heard me talk about in the first quarter, like we were pricing an extraordinary V level, maintaining that against realized volatility that m that remained relatively low is just incredibly expensive. And so the market was pricing in an extraordinary skew.

[00:12:16]There was a lot of protection against a crash. And you know, most typically a hedge pot never boils. um you just don't see it actually play out in the way that people anticipate.

[00:12:29]Um we'll see whether that continues to be the case. There's a very very short list of events in which the S&P has moved from, you know, a near 10% draw down to an all-time high. Um we can point to any number of those. Um other areas that are catching my attention, there's just been an absolute collapse in the relative beta of low volatility strategies versus the S&P. The only prior precedent to that is the leadup into March of 2000. So there, you know, there there are signs that this is getting long in the tooth and that there are challenges, but this is a different market than we've ever experienced before.

[00:13:05]>> Yeah, I think that's that's right. Like you said, is just the historical shifts or moves that we've seen in markets, whether it be gold or oil or the S&P, it's like I feel like every two to three weeks, it's like we've never seen this before. It's a historical move and standard deviation and yeah. Anyway, >> yeah, when I start hearing things about, you know, 13 standard deviation moves, etc., I I immediately jump back to the reality that we assume a distribution.

[00:13:31]We don't actually know the distribution.

[00:13:34]The net impact of that is is that when you hear somebody say this is a 13 standard deviation event or even a five standard deviation event, the reality is is that it's the standard deviation metric that is wrong, not the move.

[00:13:45]Yeah. Yeah.

[00:13:47]>> Um, speaking of large standard deviation moves, um, what's going on in the oil markets is not unprecedented, but it is unusual. The really defining characteristic that I would emphasize has been the relative lack of shift along the curve. So, this is currently being treated very much as a short-term um, uh, you know, disruption to prices.

[00:14:12]Um the move that we've seen in oil prices has translated across the globe into somewhere in the neighborhood of a 30 to 40% increase in gasoline prices using EIA or IMF figures. That would suggest that if sustained, we're looking at a hit to global GDP of around a half percent. The vast majority of that would actually on a percentage basis be felt by developed markets in dollar terms.

[00:14:36]But as a percentage of economies um you know importing countries like Zimbabwe is just an obvious example um are really facing a significant hit. There's been a big divergence effectively between country responses. Places like the UK have tried to keep prices stable by subsidizing the consumption that is largely a byproduct of the stress that they're already experiencing um in terms of uh loss of purchasing power and general um decline in standard of living in places like the UK. They're trying to offset that as much as they possibly can. The long-term implication of that though unfortunately is is it's just another aspect that is contributing to a significant surge in indebtedness from countries that are effectively trying to subsidize. The United States has not done that. Singapore is in the news for its gasoline prices being up basically 100%. Um they have not chosen to do that. The question is always qu one of unrest on the on the short term versus the longer term implications of it. Um the really critical part though that I would emphasize in terms of what we're seeing in um oil is the relatively limited pass through on the inflation component. And so there's multiple ways of thinking about inflation, but one of the most useful tools is to actually disagregate what is happening in inflation swaps on the immediate period versus what's happening in the forward space. So the second chart is actually showing you the overlap of the the overlay of the one-year inflation swap. This is over the next 12 months.

[00:16:09]That's expressed in blue and the one-year one-year inflation swap, which is what we anticipate happening in the next year. And part of what's so interesting about this is how well the markets reacted to the tariff tantrum.

[00:16:23]Basically, a one-off increase in prices.

[00:16:25]You can actually see that at the tail end of the chart. That first jump, that's all the tariff tantrum associated tariff pass through. That is now anniversary. It's one of the reasons I'm quite sanguine on inflation this year is that we are not getting another pass through. We saw that in December. For the past four years, we've seen significant seasonal price increases in December. That did not happen this year largely because companies had pushed through price increases on tariffs. Were not able to push them through. We're now seeing that further amplified, by the way, and the spread between the PPI and the ability to push through prices. I believe it was just the Philadelphia Fed, it may have been the Empire now that I'm thinking about it. The divergence between the prices paid, which is effectively for a PPI, things like crude and raw materials versus the prices that they were able to pass through, hit one of the highest spreads in history. Consumers seem to be very tapped out. the willingness to absorb higher prices is very much in question. And again, we see that in the forward inflation swaps which remain very contained. To me, this is an indication that the Federal Reserve actually continues to have credibility where it really matters. We obviously know that that um the general public's sentiment on the Federal Reserve's ability to control inflation is limited, but we're not really seeing evidence of that in financial markets. And so, you know, my view very straightforward is is that if anything, the Fed should be cutting in response to uh the the uh um uh US Iran war. Um but it's going to take them some time. They you know they very much are are data dependent in this process. But the overall story here is is that the actual inflation pass through appears extremely muted. And I would point to, you know, faster moving measures of inflation than the BLS uses.

[00:18:20]True inflation. Penn State has another one that substitutes in current real estate prices. These all suggest that that inflation is going to be much more muted for all the wrong reasons. Uh let's go ahead to the next slide.

[00:18:36]Um you know, one of the things that's also happening is is that private credit has finally made its way into the headlines. The first quarter saw extraordinary attempts at redemptions and gating coming from private credit.

[00:18:48]Um you know we are not seeing this pass through in credit spreads or other measures of risk even as we are very clearly seeing a significant rise in what are called liability management exercises. That's just a concealed default. You basically say we know you're not going to be able to pay this so let's modify the terms before we get there. um that has really dominated the actual payment defaults levels. We're now seeing those LMEs decrease at the same time that we're actually starting to see defaults begin to pick up.

[00:19:20]Similarly, on the household side, um the in the reintroduction of student loan debt repayment has had a catastrophic impact on the younger generation. Those in the 18 to 29 category in particular are seeing an extraordinary increase in their default rates and their delinquency rates. Um this is going to translate and manifest itself as reduced credit availability for a cohort that is already suffering from relatively high unemployment, failure to place after college graduation, etc. And now they're of course finding out that their access to buy now pay later burritos is very much in question.

[00:19:59]I think it was actually cheese you were talking about before. Paisley, >> speaking about the buy now, pay later. I mean, we just wrapped up the first first weekend of Coachella and I was like, how do all these 18-year-olds afford to go to Coachella? I can't even afford it.

[00:20:11]And then I found out it's, you know, buy now pay later type tickets. So, >> that's crazy to me. Um, unsurprisingly, actually, interestingly, we're finally starting to get some of the recovery data, some of the actual um, credit data on buy now pay later, and it is as bifurcated as you would expect. The ability to collect on a previously consumed burrito is quite low. Um, and so we actually are seeing recoveries in that space that are like literally it's it's bifurcated. You either can pay it, you're getting 100% recovery, or you're getting zero. And so this is one of these um interesting I would argue semifailed experiences experiments. We will probably see it come back again.

[00:20:51]But anytime you hear whether it's private credit or fintech telling you that they've got a new unique way of assessing credit, what they're really saying is they've got a new and unique uh way of taking your money, transferring it to a consumer, and not giving it back to you eventually.

[00:21:07]Um let's uh flip to the next slide.

[00:21:13]You know, one of the frustrating parts from a macro standpoint is that the headline data uh is just very much at odds with what's h happening after the fact. Um you know, we printed relatively strong payroll numbers in February.

[00:21:31]Um unfortunately, those have already been taken down. the the chart, the last chart in this um unfortunately quite small screen is showing you the estimates of the lab of the weather contribution that came from the San Francisco Fed and their estimate of what the revision will look like strictly on the basis of weather. And so that 178,000 payroll number from February, they're estimating is actually going to be negative 78. I would add on to that that the birth death model, which is the first chart that's here, continues to be the source of the revisions, the downward revisions that we're seeing, that model has not yet been changed. And so that 178 contained roughly a 100,000 jobs that I would argue are overstated from our estimate of new business formation. um that would suggest that ultimately we're going to see this payroll revise down to something that looks like negative 178 and we continue that process as you can see from the far the chart on the far right that we just continue to see a weakening labor force.

[00:22:36]Um the Fed is starting to talk about this reality, the negative population growth associated with immigration. Um obviously some of that was unwilling. Um but the negative population growth their means as Harley often points out that there you know uh are going to be fewer workers and an economy is just a function of how many workers, how many hours they work and how productive they are in each time period. It means that we either need to get an incredible surge in productivity. Um the estimates associated with AI range all over the map, but most of them suggest that it's at best about a 0.5 increase in productivity, which would not offset the decline that we're seeing now in terms of labor force. Um all else equal, it continues to suggest an economy that is slowing. The one chart that I would continue to highlight is the source of where I think most of the errors are occurring, which is the emergence of the gig economy in the post 2012 time period. That unfortunately has really polluted the data that the BLS uses for its estimate of business formation. Um, if you just think back materially to 20 years ago, if you started a business in food services that involved catering and bringing food delivery to somebody, that probably meant you were starting a wedding wedding catering business and you would end up hiring a bunch of young college students. Um, if instead you decided that you're simply applying for an employee identification number in food services because you're driving for Door Dash and you want to be able to expense your gasoline and and uh uh transportation depreciation that gets captured by the BLS currently as a new high propensity to hire business being created. They attach multiple jobs to that and of course those jobs simply don't exist. Um, so unfortunately I think this will be one of those things where we discover that the rear view mirror that we're driving with was unfortunately cracked and pointing in the wrong direction. But we can't possibly know that until the data actually emerges. And the the other fun part, of course, is that algorithms are not programmed off of revisions. They're programmed off of the headline release data. And so this just continues to be an environment in which I I unfortunately think that quote unquote markets are wrong even though they determine our P&L. And as a result, they are always by definition, right? Uh let's go to the next slide.

[00:25:02]>> I think that's it.

[00:25:02]>> That's it. All right, there we go.

[00:25:04]Perfect.

[00:25:04]>> Off the hook. Um well, no, thank you.

[00:25:07]That was super helpful. I think we covered a lot of ground there. And again, this is really just meant to um give everybody a glimpse into kind of just the state of the economy, the state of markets, risks to be aware of as you'll see, like we don't have hard and fast kind of crystal ball here, but more just kind of assessing the state of what's been transpiring. So, always appreciate your your thoughts and your insights, Mike. Um so, with the rest of the time, uh we will dive into several of our strategies today. Um first and foremost really wanted to kick off with what we view as being really topical given the market backdrop. Um as we mentioned the first quarter uh we saw traditional assets like stocks and bonds struggle. Um, obviously with the first couple weeks of the second quarter here, a lot of that has reversed, but I think if anything, the first quarter was a really stark reminder for allocators and investors as to the importance of having diversification within their portfolio.

[00:26:04]And as we all know, simplify is really living and breathing alternatives on a a daily basis. Um, and so we have a lot of strategies that we wanted to highlight um for you all today. Um let's kick off with our um currency strategy. Ticker on this is Foxy FOXY. Uh developed and managed by Ken Miller, who's our head trader and portfolio manager here at Simplify. Um and we've really just been um I would say more than pleased with the investment results that Foxy has delivered. Uh first and foremost, this falls within kind of that low correlation type strategy. Uh we've had about a point4 correlation since Foxy launched in February of 2025. So we just passed our one-year anniversary on Foxy in the first quarter. But point4 correlation to the S&P 500. But I think more impressive is even the the absolute return that Foxy has kicked off. So since inception we've delivered about a 27% total return uh exceeding that of the S&P 500. Um and in addition to a low correlation of return and attractive total return um I would say an additional benefit of Foxy is the high distribution rate and so we are currently uh distributing around 9% annualized in Foxy and you can start to see how um this starts to feed into various objectives across a portfolio.

[00:27:25]We utilize Foxy in both our alternative and our income models here at Simplify.

[00:27:30]Um and then the chart that you see here I think speaks for itself. The white line is Foxy, the currency strategy, and the importance of this in really just the first quarter. And the yellow line here is the S&P 500. Um, so we had kind of kept up with the S&P even through the tariff tantrum of last year. Um, and even through the meltup in equities that we saw, um, and really the kind of the back half of 2025 and then really that divergence that we saw at the beginning of this year. Um, and so we've, like I said, been very pleased with what Foxy has delivered just very high level from an investment overview. Um, one thing that's very unique is that it's US dollar neutral. So, this is not a view for or against the dollar. It is really seeking to harvest the carry or the yield profile um of both emerging market and developed market currencies. And so, this is a systematic strategy in nature.

[00:28:18]One in which we are going long the currencies that have higher yield short the currencies that have lower yield.

[00:28:23]And that's an oversimplification of course. We don't have time today to dive into that. Um but I think again the the investment results speak for themselves and um kudos to Ken uh for what he has uh built and for Foxy and it's delivered really thinking about the the backdrop of commodities in this first quarter. I think commodities broadly and this chart goes back to just the inception of hard which is our commodity strategy and partnership with Ultas partners. Um but commodities have been a bit of a snooze the last few years. Obviously, gold started to kind of rise to the headlines um mid last year and then oil obviously has kind of taken the baton midway through the first quarter. Uh but commodity allocations I would and just thinking back to when I kind of first started in the industry, it seemed like most advisers, allocators had some form of a strategic commodity allocation and then really through the whole decade post uh financial crisis, there just was not a lot of volatility. There wasn't a lot of price momentum. oil and gas up until this year have really been deflationary forces in the marketplace.

[00:29:26]And so I think a lot of investors kind of forgot about the importance of having commodities within within their portfolio. And so it's been what I view to be a bit of a wakeup call. I think there's a lot of macro forces at play. I know has a lot of strong thoughts on this as well. Um we're living and breathing this today with just the rise in oil prices. Um but more specifically to hard as our commodity solution, really attractive total return. You'll see here annualized return and it just passed its three-year anniversary. It's been over 15% annualized um with minimal correlation to a stock bond portfolio.

[00:29:59]And so that's what we've plotted here in this graph on the left is the orange line is a 60/40. The white line is the simplified commodity strategy. Um and again no K1 daily liquidity ETF, but you can really see the benefit of the co-movement of these two. um you know or sorry hard relative to a 60/40 portfolio and the importance of that diversification and now in the last 6 to9 months what has become an additional source of total return for the portfolio. Um the one benefit I would say in this macro backdrop is that having a more dynamic flexible solution within commodities can be very advantageous as a lot of these markets are moving very quickly. Um, so HOD, uh, Hard is dynamic, it is flexible, it has the ability to also take some short positions. Um, and so we're really proud of the the returns that this has delivered. And I think just how topical this is as a market backdrop today.

[00:30:55]CTA, um, I think many of you have heard me talk about CTA. We have our monthly videos that we put out. Um, Charlie and I talk through markets, performance, etc. Um, trend following has had a really strong quarter coming out of the gate. Um, which was helpful because 2025 was difficult for trend following. We had a lot of whips on markets with tariff tantrum. Um, but CTA has navigated uh the year-to- date period very well. Um, oftentimes when you think about getting a low and even negative correlated asset, which CTA has had negative correlation to both the S&P 500 and the core bond market since its inception back in 2022, this often means that as an investor, you're sacrificing in the return. You're giving something up in order to get that portfolio hedge.

[00:31:39]And we've kind of coined CTA as like that the hedge that you get paid to own because it has delivered negative correlation, but it's also delivered more than 10.5% annualized return since its 2022 inception. And this chart is a masterpiece. It's a work of art in my opinion because what you've seen here is the white line is CTA, the managed futures ETF that we're speaking about.

[00:32:02]The orange line is a 6040 portfolio and really the benefit of the zig and the zag that you see here. So when your core traditional 60/40 portfolio is selling off, historically CTA has delivered very attractive positive return and vice versa. Um so over time we've been able to outperform a 6040 um and really provide that balance and that offset which kind of goes back to some of the views on interest rates right now and whether bonds are still providing that diversification or ballast alongside equities. and we'll come back to some of our interest rate positioning tools as well for those of you that have strong views in the rate department.

[00:32:39]>> Just very quickly on this, you know, this to me is one of those situations where the combination in a portfolio really incredibly enhances that. And so when you think about a product that is balancing the 6040 portfolio with something like a managed futures strategy and in particular, you know, I obviously have a preference here, um, a dollar cost averaging strategy where you are continually rebalancing that is going to smooth these two lines and actually enhance the return over and above what the individual pieces have because you are buying the underperformer when the price when the price is outperforming for the outperformer.

[00:33:16]um as long as both are moving up and diversifying that return, it's going to have a multiplying impact on the overall aggregate return. It's one of the reasons that I think the return stacking phenomenon continues to gain adherence.

[00:33:31]Um but there's a very big difference between using leverage to 2x Nvidia and using leverage to double up exposure to uncorrelated returns. So just something to always keep in mind as you think about combining these. Yeah, I'm glad you brought up the topic of capital efficiency because that actually brings us to the next slide. So, um, back in December, and we spoke about this kind of as we recapped fourth quarter in our last quarterly webinar, um, but in December of this last year, we finally, and I say that because we'd been asked for for quite a while, but we finally launched our version of the capital efficiency of diversification. And so ultimately what we're providing in CATAP, CTAP, is for every dollar of investment, you're getting $2 of exposure. And one of those dollars is the S&P 500 or large cap equities. And the other dollar is CTA, the strategy that we just reviewed.

[00:34:24]And so you can imagine in a quarter like the first quarter of 2026 when equities and the large cap equities in particular very much struggled in a portfolio having this reallocation and taking a dollar away from say your S&P 500 and putting it into CAP, you were able to much better weather the storm um given the diversification that's stacked on top of the S&P. And so that's what you see here for um going back to the inception of CTAP um back in December of 2025 and just how it was able to navigate with that kind of capital efficiency. And this comes back to some of that kind of behavioral context of having diversifiers in the portfolio because of that return pattern that we talked about here. When the orange line, which is the 6040 portfolio, is doing well, traditionally your diversifiers, your alternatives tend to lag. And as we all know, when you're speaking to your clients, that can be a difficult conversation. And so the ability to stack these two return streams together is you're getting your diversification, you're maintaining your beta as well, and you're doing it in a single line item. And so there's just less disruption, I would say, at some of your quarterly investment reviews with your clients to talk about, yes, I'm giving you diversification, but you're not sacrificing on your beta. And I think first quarter was a perfect proof point of this coming to life. um within markets. And I would also say too, what you're stacking on top of the S&P is very important, right? Because S&P, whether you get it through this ETF or that ETF, they're kind of the same flavor of vanilla. Um but that differentiated part on top, the CTA that we're delivering is quite nuanced or differentiated from other trend following diversifying type strategies.

[00:36:08]So, um there's several of these out there in the marketplace. Um, like I said, we're we're very excited to have this come to market and already see early signs of success. Um, and I think there's quite a bit of discussion out there in the marketplace on how investors are increasingly adding these alternatives and these more efficient vehicles that some of the largest institutional allocators have been using for years.

[00:36:34]Um, as promised, I said we would loop back to SDMF. Um, so while CTA has been my baby since, um, I've joined Simplify, I'm very proud of it. We talk about it all the time. Um, it's been one of our flagship strategies that has seen exceptional growth. Um, managed futures broadly are a very high dispersion asset class. And so going back to our more recent launch, SDMF. Um, this is in partnership with DBI, Dynamic Beta Investments. Uh Andrew Beer, who many of you may be familiar with, um is one of the co-founders and uh we teamed up together to deliver the same replication methodology that he's been utilizing in um his ETFs um outside of Simplify uh for years now, since 2019 actually. Um and we teamed up to enhance or improve on what we consider already to be a successful investment strategy. Um and we launched SDMF um in a way that provides after tax alpha and I'll talk about that in a moment. Um and also addressing a common uh concern I would say of many allocators and within a model portfolio whether you have tracking error considerations or uh fee budgets alternatives tend to carry a higher expense ratio. So how can we help alleviate some of these common headaches for investors? Um first and foremost uh we dropped uh the headline cost on SDMF to 35 basis points. Um the systematic trend category in Morning Star which has about I think over 60 constituents as of uh the end of the quarter. Uh the average headline expense ratio in the category is in excess of 150 basis points. So we know that this part of the market tends to carry a higher fee. It's legacy been wrapped up in hedge funds.

[00:38:15]So it is daily liquid but still carries a higher fee. So 35 basis points is extremely attractive. Um it's also been indexed and so for those of you that have like I mentioned tracking your active risk budgets as you're building portfolios um this has an underlying index in which it's tracking every single day and so you can kind of alleviate some of that kind of basis or that tracking your budget. uh but I would say most importantly or in a more innovative kind of focus is rather than investing in futures contracts directly is accessing the the replication methodology from DBI on swap and so the benefits of this is that we're actually uh arranging this within a bullet swap and so all of the gains that accumulate within this swap do so over the course of a duration that's greater than one year and so when that swap expires those gains gains are all subject to long-term capital gains versus short-term gains or ordinary income. And so this is starts to really move the needle if you're holding diversifiers or trend following in particular within a non-qualified account where you do have tax consequences. So we took what was already a great uh methodology had delivered great returns from both diversification and alpha perspective and then seeking to improve those through being a little bit more tax aware reducing the expense ratio and I would say oftentimes we get the question now because we have more than one flavor of trend following ice cream um what's the key differentiator I'd say first and foremost we view CTA as more of your active unconstrained slightly higher volatility type solution in trend following uh more reflective of kind of a true hedge fund type structure. Um it is only interest rate and commodities as well. So for those of you that are seeking a true differentiator diversification source against your equities, it does not have equity or FX within the portfolio. Whereas SDMF has uh representation from all the major asset classes and you'll see that on the right hand side or right hand side of the slide, equity, rates, commodities and FX. Um and the biggest differentiator here is that Andrew Beer and team at DBI their philosophy is how do you distill the market um the average kind of return of the marketplace in a very simplistic fashion. So it's not overly complicated. You'll see here there's only 10 markets some of the most liquid markets um that you can trade in that are being reflected within this portfolio. So they're not going to the nuance niche parts of the market to try to find small sources of alpha. They're really trying to simplify the process.

[00:40:45]But most importantly, they're trying to reduce the fee drag that is very common within trend following type strategies.

[00:40:52]So very simplistic uh replication methodology um and delivering again a key source of diversification in the portfolio like all the other trend following strategies are seeking to do um and the results speak for themselves.

[00:41:05]So, um, very excited about this within our toolkit and we'll have some more resources coming out soon and some videos um, with Andrew Beer, but definitely give him a follow on LinkedIn if you're not already. Um, he's a thought leader in the space and is always on podcast and doing media and, um, and various blog. Um, so he's a wealth of information.

[00:41:25]So, that wraps up kind of um, the focus on alternatives. Um we have many more but kind of just wanted to hit the high points and like I said very topical just given the quarter that we emerged from um earlier this year. So let's pivot. Um let's talk a little bit about duration tools. Um as much as you know stock bond correlations have been debated. Um they're still kind of in positive territory. Um I think many people and Mike I think you have thoughts on this as well are starting to feel like the kind of higher for longer trade might be long in the tooth. Um perhaps there's an opportunity for investors to think about the addition of more interest rate risk into a portfolio. So before we dive into some of these tools um like what are your thoughts high level Mike on just kind of the state of where rates are and if this is something that you feel strongly about?

[00:42:17]>> Well I do feel pretty strongly about it.

[00:42:18]I think, you know, what I'm always looking for in markets is a situation in which I I have a strongly divergent view and I understand why other people have the different view, right? Um I can think they're wrong, but I want to understand it. Uh I think that there's two primary things that are playing through in interest rates. One is obviously the recent pain associated with 2022.

[00:42:40]Uh the construction of bond indices is such that they are very sensitive to Fed policy. It actively changes the construction of the index not just through treasury issuance but because these indices are market cap weighted it means that when the Fed cuts interest rates the indices become longer duration they become overweight a 30-year bond for example or a 20-year bond relative to a 2-year bond. You can just mechanically think about it. Imagine there's only two bonds in the index equal weight in terms of issuance. uh 2-year and a 30-year. Fed cuts interest rates. The 2-year has very low duration exposure. Doesn't rise very much in price. The 30-year rises quite a bit.

[00:43:23]Now, all of a sudden, the bond index is constructed so that it is overweight the 30 relative to the two. On the flip side of that, if the Fed unexpectedly hikes interest rates, then the long end becomes undervalued or cheap relative to the short end, and subsequent investment into that bond index will allocate less money to duration. This unfortunately is what appears to be driving a lot of the neglect of duration. We understand this.

[00:43:49]I've now had this confirmed from the Treasury and the Office of Management and Budget that they've gone straight to the source and are aware of this. They are trying to figure out exactly what they want to do about it. But my hunch is is that some form of curve control will be coming. Likely repurchasing low coupon, low price coupon paper that was issued in 2020 to 2022 and retiring it to reissue at higher coupon. That'll lower our aggregate debt. It'll shrink the quantity of coupons in terms of dollar value of notional outstanding, but it'll also modestly increase the interest rate expense of the United States government, which is a net positive actually if you're concerned that the Fed is going to end up cutting interest rates at some point. Um, that mechanical feature that plays through in the bond markets in my view is what's leading to the general perception that longdated bonds are a disaster. Um, what we also know is is that markets are really good at sniffing this stuff out. And the simple reality is is that we have historically seen longdated real forwards. Things like a 5year, fiveyear real rate has very closely tracked things like labor force growth. And the reason it does that is because the primary driver of investment is simply maintaining a labor capital ratio. Which means if labor forces are growing rapidly, you got to put a lot of capital to work. the cost of that capital is going to be high. Um those have diverged marketkedly. We've seen this a few times in the past. It's been a tremendous catch-up trade and it suggests unfortunately since we know that labor forces are not growing rapidly and if anything are going to contract going forward that lower interest rates are in our future, we're just not prepared to accept it yet.

[00:45:30]>> Yep.

[00:45:32]Um, with all that being said, I have my views as well, which I think are probably more in line with with yours and that I think that there's plenty of a backdrop that would support rates moving lower from here. But at the end of the day, um, it doesn't matter what Mike and I think. We hope that you care, but at the end of the day, it doesn't matter what we think. It matters what you guys think. It matters what's important to your clients. And so our goal at Simplify is to deliver you tools to help navigate those views. Um and so wanted to bring up um a suite of what we consider to be our capital efficient uh rate view tools. Um we have this sorted here on the left of if you are seeking to minimize your exposure to interest rates and duration and then on the far uh right seeking to maximize your exposure duration or interest rate risk.

[00:46:20]And so ultimately what this says is if you are in the higher for longer camp, if you believe that, you know, fiscal deficits and some of the inflation risks that we are experiencing today are here to stay um and want to hedge your portfolio from rising long-term interest rates, PIX um is going to be a solid tool for you to use within a portfolio.

[00:46:41]And so you'll see here the negative 36-year duration which is approximate as of the beginning of this quarter um fluctuates slightly on a daily basis here. Um and yes that is not a typo negative 36 years duration. Um we usually get a clients that are like wait is that is that what you meant to say?

[00:46:58]Um these are very capital efficient. And why this is beneficial in a portfolio is you as an allocator um many of us probably have used you know interest rate tools like u long bonds and an ETF for quite some time and you have to allocate anywhere from 5 10 15% to really move the needle if you're seeking to target a specific duration or have enough of an impact for say a tail risk hedge and so with these types of punchy high octane type vehicles that have historically only been available in institutional uh type strategies are now available in an ETF the alloc allocation to these can be as low as 1% 2% maybe even 3%. And so you can do a lot more in your portfolio with less capital outlay up front. We move to the far right hand of the um side of this graph. Uh RFIX is on the other end of the spectrum. And so you can imagine then this is your capital outlay tool uh inflation or excuse me uh interest rate tool that allows you to um think about tailwinds from rates falling. So, if you're in the same camp that Mike has kind of outlined here where you do think rates are going to fall and you think it's going to be meaningful and it's going to be somewhat quick um from a timeline perspective, having a strategy with approximately 40 years of positive duration in a portfolio can be very beneficial for a hedge against a recessionary type shock, growth shock in the marketplace. Um so those are the two kind I would say far ends of the spectrum. Um both of these are looking at kind of longerdated call and put options um within the treasury market. Um and these are all done um through some of our ISDA agreements and and swapions in in those markets. A little bit lighter octane but still capital efficient. Um and ways to express interest rates are TUA and TYA.

[00:48:42]Both of these are going to have positive duration and it's really highlighting different parts of the curve. So, TUA is essentially the two-year part of the curve levered up five times to give you a approximate duration profile of around 10 years. So, this can be very beneficial if you do think that the Fed is going to start cutting meaningfully, right? At the beginning of this year, I think we had about two to three cuts priced into the market. All of that has been kind of wiped out with some of the inflationary concerns um and limited ability of monetary policy to step in in the next um year, year and a half here.

[00:49:13]if you think that that is going to come back into the marketplace and the two-year is going to rally meaningfully, having um five times leverage on the two-year can be pretty attractive if that's your view and that does come to fruition. So, that's going to give you about 10 years of duration. Um and it's really about curve positioning, right?

[00:49:27]Because you can go out and buy a 10-year Treasury bond. Um but the action at the front end of the curve versus, you know, 10-year part of the curve can be quite different. So, that's a way to express your view on the front end of the curve.

[00:49:39]Um and then TYA is another way to express um and this would be more centered around the 10-year part of the curve. So if you think that you know 10year uh bonds are going to rally and you want greater duration in a portfolio or vice versa another way to say this is if you want to have a duration tool in your portfolio. I mean thinking about some of many portfolios that I've seen from adviserss will have an allocation to TLT which has approximately a you know 17 to 20 year duration but maybe you're not um optimistic on that part of the curve you can center yourself in more the 10-year part of the curve and that's going to be levered up three times. So it's going to be very similar duration profile as the typical like 20 plus year bond um but does so by focusing on the 10-year tenor within the interest rate curve. So this is the suite again of of interest rate vehicles that we have for our clients to use that are capital efficient. And again the key benefit of this is that you don't need as much of that capital outlay to express your views and position your portfolios. Um these can be used tactically. These can be used strategically. Although typically we see TUA and TUA be more of the strategic plays. Pix and RFIX tend to be more tactical.

[00:50:49]>> And I would just emphasize Paisley's comment about the the position on the curve. is largely going to be a function of who who recognizes, you know, the uh the rate discussion first. If the market recognizes it and the Fed keeps rates high, you will likely see a a flattening in which the large the longer end of the curve begins to reflect the fact that there will be lower demand um and a weaker economy.

[00:51:13]Um, the more likely path is ultimately that the shorter end of the curve, that 2-year point, which is extremely sensitive to Fed policy, ultimately ends up leading this. And that would just kind of bias you. You know, we show the minimize and maximize duration. It's not so much that they are um that although they are clearly more levered as we move further out the maximize framework, it really is a function of where you think it's going to hit in the curve. The other pitch that I would highlight on particularly things like TUA, a little bit less so on TYA, is if the Fed does begin to cut, these actually become very positive carry vehicles um and become significant sources of income in and of themselves. And so it's just something to keep in mind. Make sure you understand those calculations.

[00:52:01]>> Maybe with that, we'll pause. I want to be cognizant of time. Um I'm not able to see if we have any questions that come in um or if they have >> We do. Yeah, we we do have a couple of questions. One that came in is on CDX and so I actually wanted to to hit the question was asked with the recent concerns about private credit and overall exposure to software and high yield. Have you increased the hedges in CDX? Um this has been a really frustrating period in CDX for a variety of reasons, but the biggest one has actually unfortunately been software. If you remember, we we overlay a strategy of long highquality and short junk equities as a proxy for credit spreads.

[00:52:41]Unfortunately, software has historically been a high quality space. And so, we've seen underperformance in that quality portfolio that has been driven by the relative weakness in software. Now, that's started to reverse itself in the past couple of days. And one of the benefits of equity portfolios compared to high yield portfolios is problems get smaller rather than getting bigger. Um but that has been you know it's been a frustrating experience where our hedge has not worked particularly well. We had offset that based on some of those concerns candidly by adding in high yield CDS and IG CDS. those performed as we expected contributed to some of the catch-up that we had in the riskoff period but now of course we've basically seen the market dismiss that risk assets turn on sharply etc so we continue to maintain an overhedged position in CDX um we are um concerned obviously about the software component but um are are not particularly concerned given the reduced size that it's now taken in the index and candidly I'm not entirely sure I agree with a narrative on it. But more importantly, we are actually starting to see that quality junk begin to stabilize and perform. And the the the um changes that we made last November in which we introduced a degree of passive awareness, which is really an outgrowth of some of the the work that I've done for the past uh decade and and really accelerated in the last six months, has actually been quite powerful. We've been able to isolate effectively the exposure on those quality and junk indices into high passive and low passive components.

[00:54:24]The high passive components just continue to outperform their low passive counterparts. And that in my opinion is actually one of the clues to the sharpness of this rally that we really haven't seen the deterioration effectively in the index investing that I would argue is powering high yield that I would argue is powering the S&P 500 to new all-time highs. Um but it is absolutely worth understanding that that we saw a stumble in the quality indices that have been frustrating but they are remain theoretically so sound and the approach has worked over an extended period of time and actually has started to work recently as well. Um the last thing I would just say about this is is that you know within that high yield space the other indicator that we have on market behavior is the pricing of our total return swaps. um we access the high yield by entering into an agreement with investment banks that are facilitating the shorting of HYG. That actually creates the opportunity for us to buy an underlying exposure in HY that pays a premium. The more shorting activity there is, the higher that premium is. And so that works really well during periods of market stress.

[00:55:35]We've earned up to 200 plus basis points over and above the high yield simply by having that exposure in that form. Um just as a point of reference in the um February March selloff associated with Iran, we actually saw that widen out to about 100 basis points. And just in the last week, we actually got the feedback that there's been so much short covering in high yield that that has fallen back to the lowest level we've ever seen at 35 basis points. Again, it just speaks to me that we have a very aggressively positioned market for both a recovery in terms of the US Iran conflict in the Straits of Hormuz as well as the general idea that private credit is, to steal a phrase from 2007 contained.

[00:56:25]>> I'd say I'm just looking at some of these questions. I was able to pull this up now since I stopped sharing my screen. was able to answer some of the one of the questions was um does SDMF have because it is indexed does it have a an index in which uh investors can reference and the answer is yes and it's very simple it's SDMF index so it's available um publicly available and it has data going back to early 2002 so you can see how this would have behaved um through various market cycles anything else that we need to address it looks like we addressed the question on the difference between TYA and TUA. Um Mike address.

[00:57:02]>> Yeah, just just to explicitly address that. Um Mark, thanks for the question.

[00:57:05]The question is what is the difference between TYA and TUA? Both are levered expressions of different portions of the curve. And so mechanically, if you think about what we're doing with TYA, we are buying that intermediate term 10-year, really the 7 to 10year future, we are levering that um at the three-month point. And so if you think about that spread, that becomes a determinance.

[00:57:26]levered five times. Currently, that 3mon is give or take pays 365, I think it is.

[00:57:32]Um, and the 10ear is going to be just north of four. So, there's a positive spread that you're picking up there.

[00:57:38]That's part of the income component that I was highlighting. We do basically the same thing with TUA where we are levering up exposure to the 2-year point. And I apologize, it's a five times for TUA, three times for TYA.

[00:57:53]um that spread right now between the 2-year and the shortdated financing is actually pretty tight. It's pretty close to break even right now um on TUA, but you're really exposed to the directional movement of the 2-year. If the Fed starts the process of cutting, that difference between our financing rate and our investment rate will turn into additional income for the fund there as well.

[00:58:19]>> Wonderful.

[00:58:21]So, with that, I know we are uh cutting in on time here. Um, thank you guys. I just wanted to say uh we always appreciate support from our investors and those of you that may be new to Simplify or just tuning in to learn more about what we do and how we do it. Um, we're always here to address any questions. Um, happy to jump on a call, happy to talk through any of these strategies that we have briefly mentioned today in more detail or anything else um that you find on our website. Um we appreciate the the trust um that you've given us um and the support and um thank you Mike as always for your insights and for joining me on the the webinar and we will see you guys next quarter.

[00:59:01]>> Looking forward to it. Thank you very much.

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