House Risk

A week ago, Corey Hoffstein tweeted that something strange was happening inside CTA. CTA is the Simplify managed futures ETF, and for a long time it’s been one of the best performers in its category.

That tweet sent me back to two tweets I wrote years ago:

I had owned CTA. And then I sold it. Not because the performance was bad, and not because it strayed from its strategy. I sold it because Simplify was doing weird things. I just didn’t know yet how much weirder things were about to get.

Let me be upfront: I still hold two Simplify products, TYA and FOXY. Together they’re less than 6% of my portfolio. The difference between those and CTA is simple. CTA had substitutes. TYA and FOXY don’t, they’re doing something that is still unique in the ETF universe (I also might be wrong. If you have any ideas, please write to me!). And when you think in probabilities, the benefit of holding something unique can outweigh the risk that Simplify pulls “another Simplified“. I’m watching closely, though. FOXY is one trade away from being replaced by a macro fund or a commodity carry strategy. I do not need the same strategy, I can do it with a different diversifier.

This is a hard post to write. I loved Simplify’s original mission: bringing complex, hedge-fund-style strategies to regular investors. The best example of that mission was FIG.

FIG: The Modern Balanced Portfolio

In May 2022, inflation was biting and the classic 60/40 portfolio was falling apart, with stocks and bonds dropping together for the first time in decades. Simplify launched FIG to fix that. Fronted by Michael Green and Simplify’s CIO David Berns, FIG was pitched as the modern balanced portfolio: equities cushioned by options, managed futures for inflation protection, and income harvested from credit and volatility, all without piling on interest-rate risk.

Maybe it is not 100% aligned with what we do here, but it rhymes well.

It looked like the pieces fit. The fund used equity futures and options to build a “positively convex” stock exposure. It ran part of its assets through a Cayman Islands subsidiary to access commodities efficiently. It rebalanced based on the managers’ macro views. This was Simplify doing what Simplify thought they could do best: take a real hedge-fund idea and wrap it in something cheap-ish and liquid enough for anyone to buy.

Over the next three years, the price drifted from its $25 launch down into the low-to-mid $20s, occasionally dipping into the high teens. This happened while U.S. stocks did just fine. FIG never delivered on its promise: a smarter, hedge-fund version of the Permanent Portfolio. And it charged nearly 1% in fees to not deliver it.

The assets never came. AUM shrank toward $10 million, and outflows sped up in the final year.

By May 2025, the math made the decision for them. FIG was liquidated, along with three other Simplify funds. No scandal, no single blown-up trade, just a slow bleed of assets from a strategy that never worked as advertised. In a strange twist, the ticker FIG was later handed to Figma’s blockbuster IPO. Search “FIG” today and you’ll find a soaring design-software stock, with almost no trace of the macro fund that once used the same ticker.

The debacle I mentioned in my original tweet, though, wasn’t about FIG. It was about another Simplify fund: CYA.

CYA: Betting Against Calm

CYA launched in September 2021 with a name that was also its pitch: cover your ass..ets. It later became, literally…see ya. The Simplify Tail Risk Strategy ETF was meant to be a sharper version of TAIL, or a rival to CAOS: another tail-risk fund trying to capture the upside of a crash without bleeding out while waiting for one.

The fund held a base of fixed-income and income-generating ETFs, then layered options and derivatives on top, structured to pay off big if markets fell apart.

Maybe the CAOS comparison isn’t quite right. CYA was built for a very convex payoff, and it tried to fund those expensive options using higher-yielding ETFs. That created two problems. First, spending that much on premiums only pays off if a crisis shows up fast. Crises are rare, and timing them is nearly impossible. The fact that CYA lasted just three years tells you Simplify got the math wrong. Second, the fund depended on other Simplify products for its income, and those products weren’t cheap either. When you’re managing a bleed, every basis point matters.

By early 2024, the damage was almost complete: a 99.8% decline since inception. It was bad enough that Simplify had already done a 1-for-20 reverse split the month before, just to keep the share price from falling into fractions of a cent. Assets had shrunk to around $1.7 million, a rounding error compared to what the fund once raised.

The board liquidated CYA in February 2024.

Fee-fy

CYA also introduced something that turned into a real scandal in the U.S. ETF world. A lot of derivative-based strategies, including Simplify’s, are capital-light: most of the fund’s assets just sit as cash collateral. Standard practice is to hold that cash in short-term Treasuries, avoiding counterparty risk while collecting some interest.

Simplify did something different. It parked that cash in its own money market fund. That’s not unheard of — Cambria does something similar, investing in other Cambria ETFs — but the norm is to rebate or waive the extra layer of fees. Simplify chose to keep both fees: one on the derivative strategy, one on the money market fund sitting underneath it. The Twitter exchanges between Simplify’s CEO and other ETF-industry figures over this were something else. Let’s just say the CEO doesn’t come across as someone you’d hand your life savings to.

And instead of backing off this practice after CYA, Simplify leaned in. Take QIS, another fund built to run a FIG-like strategy, and one that also failed. During the fund crash, Simplify used QIS to hold stakes in other, unrelated Simplify ETFs. As of this writing, only about 12% of QIS’s NAV sits in other Simplify funds, but that number used to be a lot higher.

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The point of all this post isn’t just model risk, which I discussed plenty already in this blog. It’s ETF provider risk. That’s a risk you need to go into with eyes open. Trusting Vanguard with your entire portfolio is not the same bet as trusting Simplify with it. Some of that comes down to “house values,” but those values need periodic reassessment too. Today’s Vanguard isn’t Bogle’s Vanguard, just look at how far they’ve waded into private assets.

I’ve learned all of this about Simplify, and about Vanguard, because I stay in these conversations. I hear a lot of people say retail investing is a solved problem. The longer I do this, the more I disagree. I don’t think Vanguard is about to start gambling with its passive lineup, but I wouldn’t put the odds at zero either. Coming back to where I started, what FIG was trying to do is still a need the market hasn’t filled. Retail investors need more than stocks and bonds. And part of the answer has to come from strategies that require real oversight. I’d like to see BlackRock step up here (they’re better positioned for it right now than Vanguard, who’s chasing private assets, or State Street, who’d rather partner with the likes of Bridgewater), but until someone does, wouldn’t you want to check for yourself?

I’m not saying a Vanguard LifeStrategy fund — pick your stock/bond blend — won’t cover your aunt in most scenarios. It probably will. I’m saying something better exists, and it’s worth the effort to find. Take ENDW, for example. It’s a great product…one more great product, by the way, that Europoors can’t touch. Would I recommend it to my aunt? Absolutely. But only because I know it exists, and because I’ve studied Meb Faber’s approach long enough to trust it. You either put in the work to find something like ENDW, or you find someone who’s already done it for you.

What I am reading now:

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