Quadratic Interest Rate Volatility and Inflation Hedge ETF

IVOL

Capitalización de mercado USD 223 M

Higher energy costs and slowing growth are fueling stagflation fears. Explore five ETFs that could help investors navigate rising inflation and borrowing costs.

Quadratic Interest Rate Volatility and Inflation Hedge ETF remains my top curve steepener expression, managed by Nancy Davis, a standout in rate derivatives. Massive AI-driven capital expenditure and resulting long-duration issuance suggest sustained upward pressure on 10-year yields, limiting curve normalization. Fed policy under Warsh is likely to avoid curve manipulation or QE, with trimmed-mean PCE data signaling less inflationary pressure than headline/core PCE.

Stagflation fears are back as Gulf tensions pushed oil above $100 last week. These ETFs could help investors navigate rising inflation and slowing growth.

The Quadratic Interest Rate Volatility and Inflation Hedge ETF offers an asymmetric, options-based bet on US yield curve steepening, particularly between 2-year and 10-year rates. Recent curve flattening and inflation fears have pressured IVOL, but its options structure limited losses compared to delta-one strategies. Fed Chair Warsh's stance against QE and preference for market-driven long-term rates could catalyze curve steepening, favoring IVOL.

Rising stagflation fears from the Iran war and oil spike are putting inflation-hedging ETFs back in focus.

The Quadratic Interest Rate Volatility and Inflation Hedge ETF (IVOL) offers a convex macro opportunity, designed to hedge rising and falling interest rates via TIPS and curve options. IVOL suffered a 15% drawdown during the unprecedented 2022–2024 yield curve inversion, but historical steepening post-inversion supports a constructive forward outlook. The ETF's options are now cheaper due to a 50% decline in volatility, and IVOL exhibits low to negative correlation with most risk assets, enhancing portfolio diversification.

Quadratic Interest Rate Volatility and Inflation Hedge ETF combines TIPS exposure with options on yield curve spreads to hedge inflation and rate volatility. IVOL has underperformed both its main holding, SCHP, and peer ETFs, with high volatility and significant drawdowns. IVOL has lost value faster when the yield curve slope was decreasing than it gained when the slope was increasing.

The Quadratic Interest Rate Volatility and Inflation Hedge ETF (IVOL) historically outperforms during periods of fixed income stress. It's a strong contender when inflation and interest rate volatility threatens, provides mitigation for a stagflation environment, and offers strong performance year to date.

Fed chair Powell acknowledged chances of higher inflation and slower growth amid Trump tariffs.

IVOL's underperformance stems from high volatility swaptions, despite correct market views on 2s10s normalization. The ETF's composition remains unchanged, with significant exposure to SCHP and swaptions on the 2s10s spread. High ROC utilization in IVOL leads to lower NAV, making SCHP a better standalone investment.