Instead of holding individual high yield bonds directly, this active ETF uses credit derivative indexes to gain exposure to the credit risk of the US high yield corporate bond market. It holds short-term bonds as collateral and seeks high yield distribution income through credit derivatives.

It suits income-oriented investors who want efficient exposure to high yield credit and who understand the risks of a derivatives-based structure.

It is an actively managed ETF run by Simplify.

Instead of holding individual high yield bonds directly, the fund uses credit derivative indexes to gain exposure to the credit risk of the US high yield corporate bond market, and it holds short-term bonds as collateral. By using highly liquid credit derivative indexes, it gains efficient exposure to high yield credit, though the use of derivatives adds a separate layer of risk to the structure.

• High yield exposure through credit derivative indexes
• Short-term bond collateral structure

Assets under management (AUM) stand at $304.6M, and the expense ratio is 0.25% per year.

Compared with conventional high yield ETFs that hold individual bonds directly and with multi-sector bond ETFs, the use of credit derivatives is the main point of comparison.

High yield credit is driven not only by interest rates but also by credit spreads and the economic outlook. It tends to strengthen when risk appetite improves and spreads tighten, and to weaken when risk aversion grows and spreads widen. Because the fund uses credit derivative indexes, liquidity and trading efficiency are relatively high.

Fund flows into high yield products vary with the economic outlook, the credit environment and risk appetite, and demand for efficient high yield exposure can also shift capital toward related product groups. It is also worth watching how performance varies with the credit environment and the stage of the economic cycle.

Efficient high yield exposure through credit derivatives is its strength, while credit risk, economic sensitivity and derivatives risk are the considerations.

For broad high yield exposure through directly held individual bonds, direct substitutes include HYG and JNK, and for a broad high yield option with a lower fee, products such as USHY are also worth comparing. The three products shown in the table, IUSB, BINC and PYLD, differ in that they are run with broad bond and active multi-sector strategies, without using credit derivatives. What sets this ETF apart is that it gains exposure to high yield credit through credit derivative indexes.

Here are the points to check before investing in CDX. Efficient high yield exposure is the appeal, but credit risk, economic sensitivity and derivatives risk need to be confirmed in advance. It is also advisable to compare it with high yield products based on individual bonds.

Wider credit spreads in an economic slowdown and the separate risks from the use of credit derivatives are the main variables for short-term performance, and the derivatives structure can be more complex to understand and evaluate than a typical bond ETF. Because it is exposed to high yield credit, prices can swing sharply during a sudden economic downturn.

It is a suitable candidate for income-oriented investors seeking efficient exposure to high yield credit. If you want high yield based on individual bonds, consider products such as HYG and JNK. If you want high yield exposure through credit derivatives, it is advisable to choose this product after understanding its structure.