(Bloomberg) -- Nancy Davis has lured billions to her ETF guarding against inflation. Now she wants to repeat the trick with a product betting on the other side of the trade.
Her firm, Quadratic Capital Management LLC, is launching the Quadratic Deflation exchange-traded fund (ticker BNDD), it said in a Tuesday statement.
The new product will seek to profit in an economic climate of falling prices, weak growth and negative long-term interest rates. Like its established sibling with the opposing mandate -- the Quadratic Interest Rate Volatility and Inflation Hedge ETF (IVOL) -- the strategy aims to deliver by trading a mix of Treasuries and options.
“Some investors have expressed concerns that the U.S. will experience an environment similar to Japan given the debt increase and labor market,” Davis, who will manage the new strategy herself, said in the statement. “It’s prudent for investors to have tools available to them so that they are prepared for a wide range of economic outcomes and environments.”
Markets have been fretting over inflation for months on the risk that price pressures could prove less transitory than the Federal Reserve expects. Yet as key measures of reflation ease from multi-year highs, Quadratic is betting investor attention will return to the long-term deflationary forces of the pre-pandemic world.
The new fund will rely on over-the-counter options not available to general investors. The same structure has helped IVOL gather assets of $3.3 billion, even though the fund is almost 89% invested in the far cheaper Schwab U.S. TIPS ETF (SCHP).
IVOL launched in May 2019 and has returned 20.5% since its inception, compared with 20.8% for SCHP in the same period. But late last year and in early 2021, it outperformed significantly as investors anticipated a material rise in inflation, with inflows this year at a cool $2.4 billion.
BNDD will carry an expense ratio of 0.99%, matching IVOL.
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