Quadratic Interest Rate Volatility and Inflation Hedge ETF New (IVOL)

Overview

The Quadratic Interest Rate Volatility and Inflation Hedge ETF (IVOL) seeks to benefit from increases in the steepness of the U.S. interest rate curve, inflation expectations, and interest rate volatility while providing a hedge against inflation. It invests primarily in Treasury Inflation-Protected Securities (TIPS) and interest rate options.

Reputation and Reliability

Quadratic Capital Management is a relatively newer firm, and IVOL is their flagship ETF. Their reputation is building as specialists in fixed-income and volatility strategies.

Management Expertise

The management team is led by Nancy Davis, who has extensive experience in fixed-income and derivatives trading.

Goal

To generate positive returns from changes in the shape of the U.S. Treasury yield curve, inflation expectations, and interest rate volatility.

Investment Approach and Strategy

Strategy: IVOL uses a combination of TIPS and over-the-counter (OTC) options called swaptions to achieve its investment objective.

Composition The ETF's assets consist primarily of U.S. Treasury Inflation-Protected Securities (TIPS) and swaptions on the U.S. interest rate curve.

Market Share: IVOL has a moderate market share within the inflation-protected and rate-volatility ETF category.

Total Net Assets (AUM): 3190000000

Key Competitors

• iShares TIPS Bond ETF (TIP)
• Schwab U.S. TIPS ETF (SCHP)
• Vanguard Short-Term Inflation-Protected Securities ETF (VTIP)

Competitive Landscape

The competitive landscape includes broad TIPS ETFs and other specialized volatility and inflation hedge funds. IVOL differentiates itself through its use of swaptions, offering a more direct exposure to interest rate volatility, but this comes with increased complexity. Competitors such as TIP and SCHP are simpler, passively managed TIPS ETFs with lower expense ratios.

Historical Performance: Historical performance depends on interest rate movements, inflation expectations, and volatility. Data needs to be pulled dynamically for accuracy.

Benchmark Comparison: The ETF's performance should be compared against benchmarks that reflect inflation expectations, interest rate volatility and changes in the yield curve such as Bloomberg Barclays US Government Inflation-Linked Bond Index and implied volatility measures.

Expense Ratio: 0.85

Average Trading Volume

IVOL's average trading volume is moderate, reflecting interest and ease of trading for its investors.

Bid-Ask Spread

The bid-ask spread for IVOL is typically competitive, but can widen during periods of market stress.

Market Environment Factors

Economic indicators such as inflation rates, Federal Reserve policy decisions, and overall interest rate environment significantly affect IVOL's performance.

Growth Trajectory

IVOL's growth trajectory depends on investor demand for inflation protection and interest rate volatility hedging. Changes to its strategy or holdings will be reflected in its periodic fund updates.

Competitive Edge

IVOL's competitive edge lies in its unique strategy of using swaptions to directly target interest rate volatility and inflation expectations. This allows it to potentially outperform traditional TIPS ETFs in certain market environments. However, the use of derivatives also adds complexity and risk. IVOL aims to provide downside protection against unexpected interest rate shocks and inflationary pressures. This unique approach provides IVOL a focused strategy and may attract investors who are looking for an advanced fixed income strategy.

Volatility

IVOL's volatility is higher than that of traditional TIPS ETFs due to its use of derivatives.

Market Risk

Market risk includes the risk of changes in interest rates, inflation expectations, and the value of the swaptions held by the ETF. Swaptions are complex instruments and can be sensitive to changes in market conditions.

Ideal Investor Profile

The ideal investor for IVOL is someone seeking a sophisticated hedge against inflation and interest rate volatility and has a moderate to high risk tolerance. This could include institutional investors, hedge funds, and sophisticated individual investors.

Market Risk

IVOL is more suitable for active traders or investors with a tactical approach to portfolio management who understand complex derivative strategies. It is less suitable for passive index followers seeking broad market exposure to TIPS.

The Quadratic Interest Rate Volatility and Inflation Hedge ETF (IVOL) provides exposure to interest rate volatility and inflation expectations through a combination of TIPS and swaptions. Its unique investment approach differentiates it from traditional TIPS ETFs but also introduces complexity and higher volatility. It is well-suited for sophisticated investors seeking a specific hedge against interest rate risks and potential inflation surges. However, investors should carefully consider its expense ratio, risks associated with swaptions, and market conditions before investing.

Data Sources:

• Quadratic Capital Management Website
• ETF.com
• Bloomberg
• Morningstar

Disclaimers:

This analysis is for informational purposes only and does not constitute financial advice. Investment decisions should be based on individual circumstances and consultation with a financial advisor. Market share data is estimated and may vary.