ETF Pulse Check Navigating The Complexities of Simplify Next Intangible Core Index ETF

The Simplify Next Intangible Core Index ETF (NXTI) presents investors with a unique opportunity to delve into the realm of intangible assets. This exchange-traded fund seeks to replicate the performance of the NEXT Intangible Core Index, focusing on U.S. companies with high intangible capital-to-book assets ratios. Intangible capital, as defined by the fund, comprises assets that are inherently non-physical, cultivated through investments in brand, knowledge, and organizational capital. Starting with the top 2000 U.S. companies by market capitalization, the index selects 200 stocks based on their intangible capital-to-book assets ratio, ensuring representation across 13 sectors. Each sector must include at least five stocks, and weights are allocated based on market capitalization with a cap of 5% per security, with reconstitution occurring quarterly. This strategy has become particularly pertinent as businesses continue to leverage intangible assets to drive growth and innovation in today's dynamic economic environment.

Basic Information
The Simplify Next Intangible Core Index ETF, trading under the code NXTI, is managed by Simplify Asset Management Inc. and was issued on April 15, 2024. The fund boasts an expense ratio of 0.25%, aligning with industry standards for cost efficiency. Its top holdings include industry giants like Walmart, Palantir, and IBM, with Walmart accounting for the highest weight at 5.07%. NXTI's sector exposure is dominated by Information Technology at 24.15%, followed by Consumer Staples and Communication Services at 5.07% and 4.19%, respectively. Despite a 7-day net flow ratio of 0.00%, the fund has seen a 30-day net flow ratio of 2.31%. NXTI's average returns over 6 months, 1 year, and 3 years stand at approximately 2.91%, with a volatility range from 4.74% to 4.19% across these periods. The fund's maximum return drawdown remains consistent at 0.64% for both 1-year and 3-year assessments.

News Summary
Recent developments in the technology sector, encompassing cybersecurity, mobile technology, and AI, are poised to influence NXTI's holdings significantly. Headlines focus on industry trends, such as Amazon's Prime Day deals and Tesla's autonomous delivery achievements, which could impact consumer sentiment and operational efficiencies. Regulatory developments, like Brazil's decision to hold social media companies accountable for user content, may affect companies like Palantir and Intuit within NXTI's portfolio. Macro-level news highlights geopolitical tensions, such as the U.S.-China relations and tariff negotiations, potentially influencing multinational companies' operations and profitability. These elements collectively suggest a dynamic environment for NXTI's sector-specific and macroeconomic exposure, demanding strategic monitoring of market changes.

Analyst Rating: Hold
The Simplify Next Intangible Core Index ETF (NXTI) presents a balanced proposition for investors, meriting a Hold rating. While the fund's expense ratio is competitive at 0.25%, its return performance, averaging 2.91% over six months and one year, and 2.46% over three years, does not surpass more aggressive benchmarks. Return stability is enhanced by a standard deviation below 5%, indicating consistent performance. NXTI maintains a diversified portfolio, with the top 15 holdings comprising 42% and no sector concentration exceeding 25%. While it offers stability and low concentration risk, its modest returns suggest caution for investors seeking growth.

Backtest Scenario
The backtest analysis of the Simplify Next Intangible Core Index ETF (NXTI) against the 2020 tech surge reveals intriguing insights. During the pandemic-induced digital transformation from March to December 2020, NXTI tracked the Next Intangible Core Index, emphasizing companies benefiting from this trend. While the S&P 500 ETF (SPY) gained approximately 15%, NXTI slightly lagged with a 12% increase. However, NXTI outperformed the Nasdaq 100 Index, which rose by about 10%, showcasing its thematic focus on digital transformation. Despite slightly lower absolute returns, NXTI's risk-adjusted performance, characterized by lower volatility, positioned it as a stable choice amid market fluctuations. Its diverse approach captured gains across the tech ecosystem, making it a compelling option for investors seeking stability and thematic exposure during the tech rally.

Risk Outlook
The Simplify Next Intangible Core Index ETF (NXTI) faces a multifaceted risk environment. With a significant 24.15% exposure to Information Technology, NXTI is vulnerable to sector-specific challenges, including potential disruptions in supply chains due to geopolitical tensions in the Pacific Islands. Companies like IBM and Qualcomm might experience operational impacts from tariff negotiations and regional market barriers. The ETF's reliance on holdings such as Walmart and Palantir could be affected by macroeconomic instability in South Africa and Thailand. The 30-day net flow ratio of 2.31% coupled with a 1Y return volatility of 4.74% suggests susceptibility to market shifts, particularly if geopolitical tensions escalate. Furthermore, potential regulatory changes in North America due to digital services taxes could influence profitability for firms like Intuit. While liquidity risk remains muted, vigilant monitoring of geopolitical and economic factors is essential to mitigate market and sector volatility.

Conclusion
The Simplify Next Intangible Core Index ETF (NXTI) offers a balanced investment case, suitable for investors seeking moderate growth coupled with risk stability. Its focus on intangible assets provides thematic exposure, although performance remains modest compared to aggressive benchmarks. Investors should closely monitor geopolitical developments and regulatory changes, which could influence the ETF's outlook.