Chris Getter, Simplify

Floodgates for basically you could do anything in an ETF that you could do in a traditional mutual fund structure. Derivatives, convex strategies, all sorts of things that previously didn't really lend themselves to being packaged in an ETF format. And it comes with all the benefits of being in an ETF, daily liquidity, transparency, the tax advantage for clients that that matters for. And so that recognition, I think, was the genesis of Simplify to say like, hey, we can do this and we can bring something that's extraordinarily beneficial that has traditionally been solely the domain of institutional clients. So let's get right into Foxy, F-O-X-Y. It's the Simplify Currency Strategy ETF. You guys launched this in 2025, looks like in February of 2025, actively managed.

At a high level, what's the fund and what's the problem it's solving? Sure. So the problem it is solving is to generate absolute return that does not behave or is not delivered in a pattern that matches what you get from equities or what you get from bonds. So you get the return and you get the diversification benefit. When we think of how portfolios are increasingly being constructed by advisors, you've got the old 60-40, that's now migrating to something like 50, 30, 20, or perhaps that 20 might be larger. And it's not an alternative bucket where you hold one thing. It should be an alternatives bucket, right? You want to diversify that the same way that you wouldn't put your 60 in one stock. You should hold many alternatives. And Foxy fits pretty squarely into

That in terms of getting you the low correlation, the diversification benefit against stocks and bonds. But it also diversifies nicely against other things that are traditionally conceived of as alternatives. Interesting. So the FX market is the largest, most liquid market in the world. Most retail investors just don't understand it. Never really. And they have access to the currency market as an asset class, but it seems a little bit scary when you try to access it. So can you walk us through why that's been such a persistent gap and what Foxy's actually bringing to the table? Yeah, it's funny, Brett. I had watched before I came on over the past couple of weeks, I've watched a lot of your podcasts. This is the one strategy where you can't go to your brokerage account and say,

I want to buy something that's in the fund. The currency market is primarily transacted with instruments that are called forward contracts. They're a lot like futures, but it's nothing you would go to your brokerage platform and be able to find and say, I want that in my portfolio. Answering your question of why it has traditionally been so mystical to investors, I think there's a couple of reasons. One is it always comes packaged with something else. If you buy European stocks, you are naturally exposing yourself to the euro. Maybe you do it haged or unhaged, but you probably don't give it any thought that you now have a euro denominated investment.

And the same holds true in the global bond market. So that's number one. Number two, this is a more practical thing. Most currencies trade inverse. So if the Mexican peso goes from 17 to 18 and you're long peso, you've lost money, right? The peso weakened and now it buys, when you convert it back, it buys fewer dollars. I think there's a little bit of, maybe not misunderstanding, but there's plenty to scare investors off of the currency market. So the currency carry trade is one of the oldest strategies in institutional investing in plain English for the advisors watching this show. Like what does carry mean and why does it work as a return premium? Sure. Carry is just earning an interest rate period, right? So in a simple example,

If I take Brazil, which is today yielding almost 12% and I say, I want to be long Brazilian real, and I want to fund that with something that has a low yield, maybe Swiss franc, where the yield is slightly negative. The difference between those two, let's just say the 12% and call it minus one, which it's not, but let's say it's minus one, that 13% is your carry period. That's what you should earn. Now, the reason it's scary is because sometimes that trade without warning, if you're not watching the markets can blow up in your face. That's the Achilles heel of most carry strategies. And that's what we're trying to solve for as we build Foxy in terms of how we select currencies, how we weight them, and how much risk we have in the fund. Yeah. So you guys have,

If I'm reading this correctly, two distinct strategies. The first is an emerging markets carry strategy. It's got eight currency pairs against the US dollar. So can you walk us through like how this piece works? Sure. So this is the primary carry engine of the strategy, primary return engine of the strategy is to go long currencies where yields are high. So Brazil is kind of extreme. There are others that have lower amounts of yield in the domestic market. And against that, you are shorting currencies that have low yield. No emerging market currency has a negative yield, but you're basically funding this high carry strategy with low carry currencies on the short side.

And you pick up that difference. Now I'm, I've characterized that as the return engine of the strategy, the G 10 currency. So dollar, Euro, yen, Australia dollar, and so on. Those currencies tend to be act more as a cushion. They are prized for their ability to dampen volatility in the strategy. And the way that we use volatility itself as a signal is, is basically our guidepost for how much risk we want to take in the portfolio. When emerging market currencies are signaling a lot of volatility coming in the future, when implied volatility goes up, we're going to scale those back and we will move more of the exposure into the G 10 currencies. And that's our way to try and cushion or mitigate or guard, if you will,

Against that Achilles heel of a traditional carry strategy. Yeah. That was going to be my next question. So like that second part of the strategies you just mentioned is the G 10, like currency, uh, mean reversion strategy. So what are you looking at there? Is it like momentum yield momentum? Like what, what is, how does that mean reversion strategy kind of work in the G 10 space? Yeah, you said it it's yield momentum. Um, because developed economies have tended to be synchronized. They're not printing the same numbers and growth and inflation terms, but they've tended to move in the same direction going back 20 plus years. Um, that tends to imply that monetary policy, which is the primary determinant of relative exchange rate movements in G 10 will also move

In the same direction. So we use one signal, which is that implied yield. It's implied yield rather than yield momentum, but it's a yield momentum signal. And we say, okay, if this currency is starting to run, we, we want, if the implied yield momentum is going up, that's something we want to be long. And against that, because it will mean revert. If there are ones where implied yield momentum is low, we want to be short those. So again, two distinct signals for EM. It's just carry. We're ranking them, buying the high guys, shorting the low guys and G 10 it's yield momentum. High yield momentum. We'll buy those be long short, the low or negative yield moment. And then I saw like one of the key features of the fund that it's like it's dollar neutral. Like,

So every long position has an equally sized short. So can you talk about why that construction matters and why Foxy, it's not a bet on the direction necessarily of the U S dollar at all. A hundred percent. There, there are great ETFs out there that will allow you to speculate on individual currencies. If you want Euro, there's one for you. If you want broad, if you think the dollar is broadly weakening, um, there's any ETF for you. Foxy is different in terms of that dollar neutrality. And that to me is important. It's hard to make money betting on the direction of currencies. You have to have enough of those ideas and you have to be right often enough for it to produce high absolute returns. That's really

Hard. If you're really good at it, you'll earn a nickname like George Soros broke the bank of England back in 1992 because he bet against the British pound. Um, he thought it was at an unsustainably strong level, put on a massive bet. The bank let the pound go while the rest is history. Um, that's hard to do. And I I've done it for portions of my career. do we like Colombian peso, South African ran? Do we not like Indonesian rupiah? Um, so Foxy avoids doing that. And all we're saying is we don't have a view on the direction of the dollar. We don't have a view on whether it's going to strengthen against any particular currency. But I do know that some of

Those currencies in the universe of currencies that we select from offer you a lot of carry and some of them offer more protective properties. And that's all we're trying to do is capture that difference. It's pretty simple. there's a lot of complex terms, which is, is basically job security for people who do what we do, um, that folks might not understand. But, uh, at the end of the day, that's all we're trying to do is clip that difference. Yeah. It sounds like the lingo scares a lot of people. A hundred percent. So I was looking at the fund has, it holds a meaningful T-bill sleeve to collateralize the currency position. So how does this piece work and how does it contribute to the yield

Structure? Sure. Um, so a currency forward contract is, we could do this. I could say, okay, um, Brad, I will sell you, um, or I'll buy from you Mexican pesos at a rate of 18, three months from now. You say, okay, cool. Check back in in three months. Well, in the intervening period, all I have is this, an asset and a liability. I've still got all of the cash in the portfolio. So we take that fallow cash and we invest it in some combination of T-bills or our own cash management vehicle. That allows us to do a couple of things. One is we do have the collateral and we can either post collateral if positions are going against us, or we take in collateral

From counterparties if they're going in our favor. But secondarily, that's what we pay the monthly distribution from is the T-bill position. So if T-bills yield 4%, we're paying T-bills plus enough to get us to where we think the, the kind of run rate of yield in the portfolio is. So Foxy had a really strong first year. Um, I don't want to bring up the performance number because compliance won't let us air the show, but what was actually driving the performance and what does that tell us about the strategy? Got it. So Foxy is a systematic strategy, right? Everything that we do is based on the output of an algorithm. And that algorithm tells you when, it, it accounts for the volatility, the two signals that I mentioned before, the EM signal, the G10 signal. Um, and historically those

Signals have produced very attractive return. As you said, I won't get into the numbers, so this can end up getting posted, but we had an interesting case study in the first year because of the tariff tantrum. Um, president Trump comes out and announces that we're going to have much higher levels of tariffs to try and equalize the playing field in terms of, of trade balances between our trade partners. That is a challenge for a strategy like Foxy because as an algorithmic or systematic strategy, it looks at the past and makes some assumption that the future, even if it doesn't look exactly like the past is going to look somewhat similar. Um, tariffs, like, that, that basically take us back to 1930s levels of tariff, uh, levels are basically going to prove, provide a challenge to

That algorithm. So Foxy's return came primarily from the shift to a more defensive posture up to and including the period following the tariff tantrum. So we had a bit of a drawdown, but then we rallied quickly out of that as things settled down, as we had kind of reversals on trade, or if we struck agreements, uh, Foxy continued, went back to a more risk seeking posture. So if I look back at the first year, the returns were generated by both the G10 component and the EM component. So you got the benefit of the cushion and the returns and more modest returns that that kicks off. But then you also got the benefit of the carry component embedded in the EM currencies.

And so the big pitch pitch here is, is we kind of start off the episode is Foxy's uncorrelated returns to stocks and bonds. So in an environment where 60, 40 has largely been in question, we talked about this already, like how does Foxy actually behave alongside a core portfolio, just a pure diversifier? Like how, how would you, sell this to an advisor as to why they need to have this in their portfolio? Yeah. so let's start away from Foxy, which is if you look at 60, 40, the thesis underpinning 60, 40 is stocks and bonds move in different directions. They don't, um, correlation has flipped in the past couple of years. And so what you want ideally are to put things in your,

Your client's portfolios that don't do what stocks and bonds are doing. So to me, the yardstick for a success in Foxy is number one, the return, like, are we, are we delivering in terms of the return objective? Number two, it's, are we behaving differently than stocks and bonds? The correlation to a 60, 40 is about 0.4 since the inception of the fund. That to me is tremendous diversification. Uh, if you look at the correlation versus other alternatives, it's generally less than 0.2, in some cases, less than 0.1, depending on the alternative you're talking about. So, to me that that's earning its place. You're getting the return. You're not saying I'm going to park my portfolio, some portion of my portfolio in a less risky asset. Foxy is risky.

It has volatility. It moves up and down, um, within the context of achieving its return objective, but that volatility manifests itself at different times or in a different direction than what you would see in just a 60, 40, either the 60 or the 40. So currency volatility, as you just mentioned, volatility is picked up quite meaningfully in 2026. We've got fed transitions, tariff activity, as we've already mentioned, geopolitical stress. I can't get on X or Twitter or whatever we're calling it now without someone talking about the yen carry trade. Like, can you kind of talk about the currency environment as we sit here today? Yeah. it's, there are things that should drive currencies. Um, and there are plenty of models that you can use to gauge, like, what is the,

You would say fair value of a currency. Um, when you start introducing tariffs that impede the flow of capital and or goods into a country, when you start introducing physical barriers that prevent people from coming into a country, when you start having a external shock, like oil going from, 70 to a hundred, that all kind of flies in the face of, or it complicates your ability to include or account for all of those variables. So, little surprise that the direction of travel in interest rates has generally been up, right? we've now got inflation starting to bake into numbers around the world because energy is an input to everything. There are concerns, even if we had a ceasefire today, uh, and we stopped, hostilities that the, the price

Increases in hydrocarbons are going to get passed through to everything else. And there are supply bottlenecks. Um, so that actually makes, that's one of the things that has contributed to currencies being more volatile. It makes perfect sense. Um, in the same way that uncertainty around earnings would introduce volatility to stock prices. It's it, these are the things that drive stock prices. If, if they're more uncertain, stock prices will be more volatile. These are the things that drive currencies. If we have less visibility or less confidence in where those are headed, you will have more currency volatility. So as we talked about again, earlier simplify as a whole alternatives lineup, right? You got managed futures, you've got private credit. Now you've got currency.

How do you think about, I guess, two part question. How do you think about Foxy sitting inside the broader alternative sleeve? And do you think we're going to get more, uh, I would say we'll call them just broadly alternative strategies, uh, from the firm in the near future? Yes. Um, alternatives is our calling card. We have fixed income funds. We have some equity funds, but alternatives are what we lead with because it's what we're really good at. And, as a nice side benefit, it's what the market is demanding. And we think there's space for what we do best in class solutions. So wouldn't surprise me if we had some more, um, in terms of where Foxy fits in our alternative lineup, it doesn't look like the other alternatives, like our managed futures

Fund does commodities, uh, energy, ag metals, et cetera, um, does not do equity futures and it does not do currency futures. So Foxy can be a nice compliment to that. If you look at our other alternatives, we've got, you mentioned private credit is one of them. Um, there's no currency exposure in the private credit fund. So even within our own lineup, we're thinking about how to best diversify because we would like to be the one-stop shop for our clients' alternative exposures. So Chris, I really appreciate you spending some time with me today, but I can't let you go without you telling everybody where people can learn more about Simplify and find all the information they need on Foxy.

Yeah. We are always happy to hear from our clients. You can go to simplify.us. You scroll all the way to the bottom. You can send us an email. It's info at simplify.us. Our phone number's on there. All of our funds are listed. Please check us out. All right, man. Thanks for spending some time with me today. Thank you, Brad.