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Simplify Launches Two ETFs Focused on Capturing Opportunities Found in Companies with High Levels of “Intangible Capital”
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Intangible Core and Value strategies track indexes backed by a significant body of academic research emphasizing the importance of intangible capital
April 16, 2024
NEW YORK – Simplify Asset Management (“Simplify”) an innovative provider of Exchange Traded Funds (“ETFs”), is today announcing the launch of the firm’s two newest ETFs (NXTI and NXTV), both unique funds designed to provide investors with exposure to the U.S. equity market through the lens of “intangible capital” rather than the traditional valuation approaches which rely only on tangible assets.
“Tangible assets have been a declining component of equity valuations for decades,” said David Berns, PhD, Chief Investment Officer with Simplify. “Patents, software, research & development and brand value are examples of intangible assets that lack physical form and may not be visible on company balance sheets. However, our belief – confirmed by academic research - is that the most successful corporations have exhibited relatively ‘asset-light’ characteristics, with much higher allocations to intangible capital than their peers.”
The Simplify NEXT Intangible Core Index ETF (NXTI) seeks to track the performance of the NEXT Intangible Core Index, which is designed to provide exposure to companies with high intangible capital-to-book asset ratios within their respective sector. The index calculates intangible capital by measuring and capitalizing corporate expenses related to growing intangible assets. Index construction begins with a potential universe of the top 2,000 U.S. corporations based on market cap. A ratio of intangible capital-to-book assets is calculated for each stock and compared to other stocks in its sector. The 200 stocks with the highest ratios are selected, weighting stocks with the highest ratios more heavily.
The Simplify NEXT Intangible Value Index (NXTV) looks at the intangible capital approach through a valuation lens.
“Traditional valuation metrics, based primarily on price-to-book value, have dramatically underperformed the overall stock market for decades, in large part because reliance on book value as a metric underweights many successful companies that invest in research & development, productivity and human capital,” added Berns.*
The index underpinning NXTV, the NEXT Intangible Value Index, starts with the same universe of 2,000 U.S. equities but, using a ratio of market capitalization to intangible-adjusted book value, arrives at a portfolio of 200 stocks. The NEXT Intangible Value Index modernizes value investing by including intangible assets in the anchor used to determine “value.”
Both indices were created by Andrea Eisfeldt, the Laurence D. and Lori W. Fink Endowed Chair in Finance and Professor of Finance at the Anderson School of Management at UCLA, where she has taught since 2010.
“I am incredibly excited to be working with the Simplify team on these new indexes. Their forward-looking lineup of strategies and their knowledge of the crucial importance of identifying and measuring intangible assets for understanding equity valuations makes them a natural partner in bringing these approaches to market,” said Ms. Eisfeldt.
“We’re thrilled to be working with someone of Andrea’s caliber to bring these new approaches to market,” continued Berns. “Traditional approaches to valuation and traditional approaches to equity analysis are undergoing a sea change, and Andrea’s insights and research have played a major role in capturing and clarifying just how intangible capital should be considered when evaluating a company’s valuation, use of capital, and more.”
NXTI and NXTV join a Simplify fund lineup which recently passed the $4 billion AUM mark.
*Source: Bloomberg
ABOUT SIMPLIFY ASSET MANAGEMENT INC
Simplify Asset Management Inc. is a Registered Investment Adviser founded in 2020 to help advisors tackle the most pressing portfolio challenges with an innovative set of options-based strategies. By accounting for real-world investor needs and market behavior, along with the non-linear power of options, our strategies allow for the tailored portfolio outcomes for which clients are looking. For more information, visit www.simplify.us.
“Tangible assets have been a declining component of equity valuations for decades,” said David Berns, PhD, Chief Investment Officer with Simplify. “Patents, software, research & development and brand value are examples of intangible assets that lack physical form and may not be visible on company balance sheets. However, our belief – confirmed by academic research - is that the most successful corporations have exhibited relatively ‘asset-light’ characteristics, with much higher allocations to intangible capital than their peers.”
The Simplify NEXT Intangible Core Index ETF (NXTI) seeks to track the performance of the NEXT Intangible Core Index, which is designed to provide exposure to companies with high intangible capital-to-book asset ratios within their respective sector. The index calculates intangible capital by measuring and capitalizing corporate expenses related to growing intangible assets. Index construction begins with a potential universe of the top 2,000 U.S. corporations based on market cap. A ratio of intangible capital-to-book assets is calculated for each stock and compared to other stocks in its sector. The 200 stocks with the highest ratios are selected, weighting stocks with the highest ratios more heavily.
The Simplify NEXT Intangible Value Index (NXTV) looks at the intangible capital approach through a valuation lens.
“Traditional valuation metrics, based primarily on price-to-book value, have dramatically underperformed the overall stock market for decades, in large part because reliance on book value as a metric underweights many successful companies that invest in research & development, productivity and human capital,” added Berns.*
The index underpinning NXTV, the NEXT Intangible Value Index, starts with the same universe of 2,000 U.S. equities but, using a ratio of market capitalization to intangible-adjusted book value, arrives at a portfolio of 200 stocks. The NEXT Intangible Value Index modernizes value investing by including intangible assets in the anchor used to determine “value.”
Both indices were created by Andrea Eisfeldt, the Laurence D. and Lori W. Fink Endowed Chair in Finance and Professor of Finance at the Anderson School of Management at UCLA, where she has taught since 2010.
“I am incredibly excited to be working with the Simplify team on these new indexes. Their forward-looking lineup of strategies and their knowledge of the crucial importance of identifying and measuring intangible assets for understanding equity valuations makes them a natural partner in bringing these approaches to market,” said Ms. Eisfeldt.
“We’re thrilled to be working with someone of Andrea’s caliber to bring these new approaches to market,” continued Berns. “Traditional approaches to valuation and traditional approaches to equity analysis are undergoing a sea change, and Andrea’s insights and research have played a major role in capturing and clarifying just how intangible capital should be considered when evaluating a company’s valuation, use of capital, and more.”
NXTI and NXTV join a Simplify fund lineup which recently passed the $4 billion AUM mark.
*Source: Bloomberg
ABOUT SIMPLIFY ASSET MANAGEMENT INC
Simplify Asset Management Inc. is a Registered Investment Adviser founded in 2020 to help advisors tackle the most pressing portfolio challenges with an innovative set of options-based strategies. By accounting for real-world investor needs and market behavior, along with the non-linear power of options, our strategies allow for the tailored portfolio outcomes for which clients are looking. For more information, visit www.simplify.us.
