It is well-known that investing into fixed income instruments has been a losers’ game ever since the Federal Reserve began raising interest rates.
2022 was the worst-ever year on record for U.S. bond investors, according to an analysis by Edward McQuarrie, a professor emeritus at Santa Clara University who studies historical investment returns.
And the Bloomberg Global Aggregate Bond Index, which tracks investment grade debt, like Treasuries, and is the benchmark for many of the world’s largest passive bond funds, plunged 16.3% in 2022, its worst on record.
Bond performance this year hasn’t been as bad as 2022, but the “year of the bond” that Wall Street was touting at the start of 2023 has so far failed to deliver. The recent rise in Treasury yields to levels not seen since 2007 has sent the Bloomberg bond index down another 3.6% so far in 2023.
Yet, there is a small fixed-income exchange-traded fund (ETF) that has gained a remarkable 200% since the end of 2021. Let’s take a look at it.
Simplify Interest Rate Hedge ETF
The fund is the Simplify Interest Rate Hedge ETF (PFIX), which is also up another 40% over the past year. It seeks to hedge interest rate movements arising from rising long-term interest rates, and to benefit from market stress when fixed income volatility increases, while providing the potential for income.
So how has this fund turned in such an outstanding performance during this brutal bear market in bonds?
Bloomberg’s Ye Xie wrote about how the fund is the brainchild of Harley Bassman. While at Merrill Lynch in 1994, Bassman created the MOVE Index, which is a market-implied measure of bond market volatility. It is Wall Street’s most widely watched benchmark for U.S. Treasury market volatility.
Bassman told Xie that he first came up with the idea for…
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