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 increased interest rate volatility and inflation expectations. It invests in Treasury Inflation-Protected Securities (TIPS) and options on the U.S. interest rate swap curve. The ETF aims to provide a hedge against rising rates and inflation.

Reputation and Reliability

Quadratic Capital Management is a relatively newer firm, known for its expertise in fixed income and volatility strategies. While not as established as some larger issuers, they are focused and specialized.

Management Expertise

The management team has experience in fixed income markets and derivatives, specifically in managing strategies related to volatility and inflation hedging.

Goal

To provide investors with a hedge against rising interest rates and inflation, while also seeking to generate returns from interest rate volatility.

Investment Approach and Strategy

Strategy: The ETF does not track a specific index but uses a managed approach combining TIPS and interest rate swap options to achieve its objectives.

Composition The ETF primarily holds Treasury Inflation-Protected Securities (TIPS) and long positions in OTC interest rate swaptions.

Market Share: The market share is moderate given that IVOL is a specialty ETF; it's not a broad market fund, making direct market share comparison challenging.

Total Net Assets (AUM): 2729880586

Key Competitors

• iShares TIPS Bond ETF (TIP)
• Vanguard Short-Term Inflation-Protected Securities ETF (VTIP)
• Simplify Interest Rate Hedge ETF (PFIX)

Competitive Landscape

The competitive landscape includes broad TIPS ETFs (TIP, VTIP) and more specialized interest rate hedge funds (PFIX). IVOL differentiates itself through its use of options, aiming to provide more leveraged exposure to interest rate volatility. Competitors like TIP and VTIP offer broad exposure to TIPS with lower volatility and expense ratios, while PFIX offers a different hedging approach using options.

Historical Performance: Historical performance varies significantly based on interest rate and inflation environments. Performance has been volatile, especially during periods of rapid interest rate changes.

Benchmark Comparison: A direct benchmark comparison is difficult as IVOL has a unique strategy. Its performance is typically compared to the performance of a portfolio of TIPS and proxies for interest rate volatility.

Expense Ratio: 0.99

Average Trading Volume

The ETF's average trading volume is moderate and can fluctuate based on market conditions.

Bid-Ask Spread

The bid-ask spread can be wider compared to more liquid ETFs, reflecting the ETF's unique asset composition and volatility.

Market Environment Factors

Economic indicators such as inflation rates, Federal Reserve policy decisions, and interest rate volatility significantly impact IVOL's performance. Changes in inflation expectations and the yield curve are particularly important.

Growth Trajectory

Growth has been dependent on investor appetite for inflation and interest rate protection. Changes to the ETF's holdings are typically driven by shifts in the yield curve and volatility expectations.

Competitive Edge

IVOL's competitive advantage lies in its unique strategy of using options on interest rate swaps to hedge against rising rates and inflation. Unlike passive TIPS ETFs, IVOL actively manages its exposure to volatility, aiming to provide potentially higher returns in specific market environments. This actively managed approach gives it the flexibility to adapt to changing market conditions. The strategy allows for asymmetric payoff profiles, potentially benefiting from large moves in interest rates.

Volatility

The ETF is highly volatile due to its use of options and exposure to interest rate fluctuations. Volatility can be significantly higher than broad bond ETFs.

Market Risk

The primary market risks include interest rate risk, inflation risk, and counterparty risk associated with the options contracts. Changes in interest rate expectations can negatively impact the value of the ETF's holdings.

Ideal Investor Profile

The ideal investor is one who seeks to hedge against rising interest rates and inflation, understands the risks associated with options, and has a higher risk tolerance.

Market Risk

This ETF is best suited for sophisticated investors with a tactical approach and a need for inflation and interest rate protection, not for passive or long-term investors seeking broad market exposure.

IVOL is a specialized ETF designed to hedge against rising interest rates and inflation using a combination of TIPS and interest rate swap options. Its performance is highly dependent on market conditions and interest rate volatility. While it offers potential benefits during periods of rising rates, it also carries significant risk. IVOL is best suited for sophisticated investors with a high risk tolerance seeking a tactical hedge.

Data Sources:

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

Disclaimers:

The data provided is for informational purposes only and should not be considered investment advice. Market conditions can change rapidly, and past performance is not indicative of future results. Investors should consult with a financial advisor before making any investment decisions.