(Bloomberg) -- Few bond funds have done better amid the fixed-income market’s record losses than Harley Bassman’s small ETF, which has tripled in value since the start of last year.

The roughly $270 million Simplify Interest Rate Hedge ETF (PFIX) is up 39% over the past year, more than any other bond ETF or mutual fund in the US, data compiled by Bloomberg show. Since the end of 2021, just before the Federal Reserve started to jack up borrowing costs, it has returned around 200%.

The exchange-traded fund stands out as one of the few winners in the brutal bear market for bonds, as a combination of the Fed’s aggressive interest-rate hikes and swelling US government bond sales have hammered investors. The Bloomberg USAgg Index has slumped 3.1% this year, following a record 13% decline in 2022, and is heading for an unprecedented third year of losses. 

Launched in May 2021, the Simplify ETF owns long-dated options – known as payer swaptions — on 20-year interest-rate swaps. It is equivalent to buying put options on 30-year Treasuries, a move that pays off if yields rise with volatility.

And rise they did, in a spectacular fashion. The 30-year yield surged above 5% this month for the first since 2007, from about 1.6% at the end of 2020. Meanwhile, the MOVE Index, which Bassman created in 1994 at Merrill Lynch to track bond volatility, has almost tripled to 135.

Read more: Egg Salad and Gasoline: One Bond Maven’s Take on Low Volatility

Bassman, now the managing partner at Simplify Asset Management, said the timing of his fund couldn’t be better. 

“PFIX is long a boatload of volatility,” he said. “Sometimes it’s just right person in the right place, at the right time.”  

Bassman said he first came up with the idea for the ETF fund in late 2020, a few years after retiring from Pacific Investment Management Co., where he worked with Paul Kim, who started Simplify in 2020. At the time, the Fed’s zero-rate policy and relentless bond purchases to fight the pandemic were keeping both yields and volatility near record lows.

“I knew it couldn’t last forever,” Bassman said. “This was not hard to figure out.”

Read more: One Rate-Hedging ETF Set for 100% Return Is Standing Apart

Despite the outsized returns, investors have been consistently withdrawing money from the ETF, a sign they expect its best days are behind it. Assets have shrunk about 40% from a year ago.

“People think that 5% is the top” for 10-year yields, Bassman said. The maturity breached that level Monday for the first time since 2007.

Rather than an instrument to bet on the direction of the market, Bassman said his fund is mainly designed for investors to hedge against interest-rate risk and turbulence.

He acknowledges that unusually high volatility is difficult to sustain. At the current level, the MOVE Index is about double the average over the past decade.

“I want to sell interest-rate volatility,” said Bassman. “I want buy the MOVE index at 60, and I want sell at 130.”

He says the US government deficit as one of the main reasons for the bond rout. But he says yields are just returning to more normal levels after the 10-year fell as low as 0.3% in March 2020. 

“5% is not a crazy number,” he said. “Zero was a crazy number.”

--With assistance from Katie Greifeld.

©2023 Bloomberg L.P.