U.S. credit- default swap fund withdrawn


After all the hype around the lone U.S. credit-default swap ETF managed by rates veteran Harley Bassman, Simplify Asset Management decided to think things over and come back later with a redesigned product.

The application for the Simplify Credit Hedge exchange-traded fund was withdrawn late Friday, according to filing in the U.S. Securities and Exchange Commission. The proposed fund would have invested up to 50% of its assets in credit-default swap index options, which allow investors to hedge bond positions or make a directional wager.

Though the application was pulled, Simplify plans to retool the planned ETF and refile, according to Chief Executive Paul Kim.

'The final prospectus was a bit of a mismatch for the original strategy we intend to roll out, wrote Kim in an email. I believe the best hedges can survive bull markets - we wanted to go back to the drawing board and build something with the potential and higher likelihood of positive carry.

Simplify's March filing attracted attention for Bassman, who created the MOVE Index to track Treasury volatility, was listed as the fund's co-manager. Bassman specialized in fixed-income derivatives and structured products during his 26-year career at Merrill Lynch, according to his personal website, and worked at Credit Suisse Group AG and Pacific Investment Management Company before joining Simplify.

Previous products tied to default swaps, such as the ProShares CDS North American High Yield Credit ETF, struggled to gather assets or shuttered. The ProShares Fund was liquidated in 2014 only to launch a few years later.

Although other CDS-linked funds have failed, that doesn't mean there isn't demand for such a product, according to Dave Nadig, chief investment officer of ETF Trends. A fund like CDX would probably draw assets from sophisticated individual investors to institutions and hedge funds, he added.

'It has been a missing piece in the ETF landscape for 20 years, said Nadig. Is it like that crazy, sharp ceramic paring knife I carry in my drawer? I'm hardly going to use it for everything, but when I need it, there's not much better.