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Simplify Launches the MTBA ETF, Revolutionizing Exposure to Mortgage-Backed Securities
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“Newly issued MBS are the best risk-adjusted bonds in the market,” according to Harley Bassman, “The Convexity Maven,” creator of MTBA and 35-year veteran in MBS Derivatives trading
November 07, 2023
NEW YORK – Simplify Asset Management (“Simplify”), an innovative provider of Exchange Traded Funds (“ETFs”), is today launching its newest fund, the Simplify MBS ETF (MTBA).
MTBA invests in mortgage-backed securities (MBS), which provide attractive yields versus comparable US Treasuries while carrying little to no credit risk. Unlike the MBS which make up the benchmark Bloomberg U.S. MBS Index and which populate the holdings of the large, legacy MBS-focused ETFs, MTBA will focus on providing exposure to newer MBS issued in 2023.
“MBS issued this year have larger coupons and shorter durations in comparison to previous vintages, providing a potential cushion against losses if the Federal Reserve keeps rates ‘higher for longer,’ which is something I have been suggesting will be the case for some time,” said Harley Bassman, Managing Partner at Simplify and creator of the strategy underpinning MTBA. “Approaches that only mimic the broad MBS universe are bound to disappoint since more than 70% of all 30-year MBS have coupons between 2% and 3.5% with an average price near 79, meaning investors are left with small distributions, large durations, and poor positioning in the event of a hard landing.”
MTBA will initially invest in the Federal National Mortgage Association (Fannie Mae) 6.0% coupon bonds. This exposure will be obtained via investments in To-Be-Announced (TBA) contracts, which are MBS forward contracts. These TBA contracts provide improved liquidity versus buying MBS directly, have greater operational and tax simplicity, and will be rolled monthly as they approach expiration.
MTBA is expected to deliver a monthly distribution and will do so with no lockups or K-1 tax forms.
“Investors understand the theoretical role MBS exposure should play in a diversified fixed-income portfolio, providing attractive yields versus comparable US Treasuries while carrying little to no credit risk. Yet to this point, broad MBS solutions have been found wanting. Rather than go broad, now is the time for investors to consider the exposure offered by MTBA,” added Bassman. “In my opinion, newly issued MBS are the best risk-adjusted bonds in the market, and my colleagues and I are thrilled to be rolling out this fund at what is such a crucial time for income-focused investors.”
Bassman is also the creator of the Simplify Interest Rate Hedge ETF (PFIX). PFIX uses OTC interest rate options to deliver an exposure that is functionally similar to owning a position in long-dated put options on 20-year US Treasury bonds.
In addition to MTBA and PFIX, Simplify has also introduced a number of other innovative fixed income ETFs, such as the Simplify Short Term Futures Strategy ETF (TUA). TUA, which has gathered more than $650 million in assets, provides levered exposure to the 2-year US Treasury to allow investors to easily make meaningful bets on the short end of the curve.
“The current levels of complexity and volatility across the fixed income spectrum are unlike anything investors have seen in decades. Helping navigate this new normal is at the core of our efforts at Simplify, and we look forward to continuing to educate the marketplace about MTBA and all of the funds in our fast-growing lineup,” added Paul Kim, CEO of Simplify.
ABOUT SIMPLIFY ASSET MANAGEMENT INC
Simplify Asset Management Inc. is a Registered Investment Adviser founded in 2020 to help advisors tackle the most pressing portfolio challenges with an innovative set of options-based strategies. By accounting for real-world investor needs and market behavior, along with the non-linear power of options, our strategies allow for the tailored portfolio outcomes for which clients are looking. For more information, visit www.simplify.us.
MTBA invests in mortgage-backed securities (MBS), which provide attractive yields versus comparable US Treasuries while carrying little to no credit risk. Unlike the MBS which make up the benchmark Bloomberg U.S. MBS Index and which populate the holdings of the large, legacy MBS-focused ETFs, MTBA will focus on providing exposure to newer MBS issued in 2023.
“MBS issued this year have larger coupons and shorter durations in comparison to previous vintages, providing a potential cushion against losses if the Federal Reserve keeps rates ‘higher for longer,’ which is something I have been suggesting will be the case for some time,” said Harley Bassman, Managing Partner at Simplify and creator of the strategy underpinning MTBA. “Approaches that only mimic the broad MBS universe are bound to disappoint since more than 70% of all 30-year MBS have coupons between 2% and 3.5% with an average price near 79, meaning investors are left with small distributions, large durations, and poor positioning in the event of a hard landing.”
MTBA will initially invest in the Federal National Mortgage Association (Fannie Mae) 6.0% coupon bonds. This exposure will be obtained via investments in To-Be-Announced (TBA) contracts, which are MBS forward contracts. These TBA contracts provide improved liquidity versus buying MBS directly, have greater operational and tax simplicity, and will be rolled monthly as they approach expiration.
MTBA is expected to deliver a monthly distribution and will do so with no lockups or K-1 tax forms.
“Investors understand the theoretical role MBS exposure should play in a diversified fixed-income portfolio, providing attractive yields versus comparable US Treasuries while carrying little to no credit risk. Yet to this point, broad MBS solutions have been found wanting. Rather than go broad, now is the time for investors to consider the exposure offered by MTBA,” added Bassman. “In my opinion, newly issued MBS are the best risk-adjusted bonds in the market, and my colleagues and I are thrilled to be rolling out this fund at what is such a crucial time for income-focused investors.”
Bassman is also the creator of the Simplify Interest Rate Hedge ETF (PFIX). PFIX uses OTC interest rate options to deliver an exposure that is functionally similar to owning a position in long-dated put options on 20-year US Treasury bonds.
In addition to MTBA and PFIX, Simplify has also introduced a number of other innovative fixed income ETFs, such as the Simplify Short Term Futures Strategy ETF (TUA). TUA, which has gathered more than $650 million in assets, provides levered exposure to the 2-year US Treasury to allow investors to easily make meaningful bets on the short end of the curve.
“The current levels of complexity and volatility across the fixed income spectrum are unlike anything investors have seen in decades. Helping navigate this new normal is at the core of our efforts at Simplify, and we look forward to continuing to educate the marketplace about MTBA and all of the funds in our fast-growing lineup,” added Paul Kim, CEO of Simplify.
ABOUT SIMPLIFY ASSET MANAGEMENT INC
Simplify Asset Management Inc. is a Registered Investment Adviser founded in 2020 to help advisors tackle the most pressing portfolio challenges with an innovative set of options-based strategies. By accounting for real-world investor needs and market behavior, along with the non-linear power of options, our strategies allow for the tailored portfolio outcomes for which clients are looking. For more information, visit www.simplify.us.
