The Simplify Currency Strategy ETF (FOXY), which started trading Feb. 4, is an actively managed fund built around two strategies focused on currency markets.
The first component is an emerging markets carry strategy that uses eight emerging market currency pairs, with each currency paired against the US dollar.
The four currencies with the highest interest rates will be held long, while the four currencies with the lowest interest rates will be shorted. The differences in yield, combined with the changes in the currency levels become the fund’s profit.
The second strategy focuses on G10 currencies, using six different currency pairs.
The three currencies with the strongest yield momentum increase will be held long while the three currencies with the lowest yield momentum increase will be shorted.
This strategy aims to benefit from the tendency for movements in G10 currencies to revert to prior levels over time.
“This fund is not a bet directionally on currencies, it is long one basket and short an equal amount in another basket,” Chris Getter, portfolio manager and managing director at Simplify, said.
Getter emphasized that FOXY, which has an expense ratio of 75 basis points, is “dollar neutral,” meaning it is not a play on the relative strength or weakness of the US dollar, but the strategy could benefit from increased currency volatility.
Ken Miller, Simplify portfolio manager and managing director, said the start of the ETF was not timed to anything currently unfolding on the geopolitical landscape, including new policies and proposals under the Trump administration.
“But the timing is opportune at this moment,” he said. “The current president is willing to go to some pretty aggressive measures into trade to try to get certain countries to play fairly.”
“This is a very unique strategy within the currency ETF space, which doesn’t see a lot of innovation or interest,” Sumit Roy, senior ETF analyst at etf.com, said.
“That said, the success of this fund will come down to how well it performs,” he added. “It utilizes two relatively simple strategies that sound compelling, but the proof will be in the pudding because currency markets are notoriously difficult to navigate.”
Getter and Miller are both veterans of these unique markets. Before joining Simplify, Miller worked at Newport Beach, California-based Pimco Investment Management for 22 years, where he managed the currency allocation of $100 billion hedged equity and hedged fixed income portfolios.
Getter spent a decade at Pimco prior to joining Simplify.
