'Rising star of hedge funds' launches Quadratic Deflation ETF
Asset management firm Quadratic Capital Management has launch the Quadratic Deflation ETF (NYSE Arca: BNDD).
Managed by Nancy Davis, Quadratic Capital Management’s Founder and Chief Investment Officer who has been dubbed a rising star of hedge funds', BNDD seeks to profit from a variety of challenging environments including lower growth, deflation, lower or negative long-term interest rates, and/or a reduction in the spread between shorter and longer-term interest rates by investing in US Treasuries and options.
In the US, government debt levels have soared recently amid multiple rounds of fiscal stimulus in response to the Covid-19 pandemic. Other recent trends include an ageing population, advancements in technology, tax increases and increasing productivity.
“Some investors have expressed concerns that the US will experience an environment similar to Japan given the debt increase and labor market. Quadratic Capital aims to help these investors achieve their goals using our expertise in the interest rate and options markets,” says Davis. “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.”
The BNDD portfolio is mainly comprised of long-dated US Treasury bonds, which are enhanced by a portfolio of options. Bonds tend to perform well during times of deflation, due to low interest rates. When interest rates fall, bond prices typically rise. The options portion of the portfolio is expected to increase in value with the compression of the spread between shorter and longer-term interest rates.
The options within the BNDD portfolio are traded on the over-the-counter (OTC) interest rate markets, which are typically not available to most investors. Quadratic Capital Management is on the forefront in the effort to provide access to this market for all investors.
BNDD may help investors during times when other parts of their investment portfolios struggle.