Picking up on a theme that has been thrown around frequently on Wall Street, ever Since Howard Marks asked in March 2015 "what would happen if credit ETF holders sold all at once", and prompting many other Wall Street icons to warn about the dangers of debt ETFs, Schwartz is so convinced that a "day of reckoning" in fixed income is coming and will hit credit ETFs the hardest, that he has been not only shorting these passive vehicles but layering puts on top.
To Schwartz, it was only a matter of time before rising rates kill the easy financing for highly leveraged companies, spurring a wave of bond defaults. Furthermore, as Bloomberg notes, running a hedge fund with mostly his own cash has allowed Schwartz the freedom to bet on more extreme scenarios, like betting on the very extinction of the product with credit ETFs "perishing in the bloodbath."
Why? Because as he told Bloomberg, "the ETF structure isn't really designed for a large market sell-off. They will break if people don't trust that they have the liquidity that they think they do today."