ETF Of The Week: New Bent To Bond Hedging

IVOL brings a new hedge to fixed income ETFs.

Reviewed by: Drew Voros
Edited by: Drew Voros

Launched in May 2019, the Quadratic Interest Rate Volatility and Inflation Hedge ETF (IVOL) has brought a new edge and hedge to fixed income ETFs, and raising $82 million in assets from a new issuer is noteworthy, which makes it our first ETF Of The Week for 2020.

IVOL is an actively managed ETF focused on protecting against rising long-term interest rates using bonds and derivatives.

The portfolio consists of Treasury inflation-protected securities (TIPS) to protect against an increase in interest rates, along with holding options on the steepening of the yield curve, according to’s fund report provided by FactSet.

Hedge Tool

And keep in mind this a hedging product, something Nancy Davis, founder of Quadratic Capital Management, who is also the portfolio manager IVOL, emphasizes.

“We provide exposure to inflation expectations, and also interest rate volatility hedge. It's literally what the name is [“Interest Rate Volatility and Inflation Hedge”], is what the fund does,” Davis said.

“But everything is fully funded. We're not borrowing any money,” she added. “It has a very different return potential than when you buy an option. Our strategy is long the option.”

The fund has been flat since its inception—not surprising, considering falling interest rate yields and low volatility from the Federal Reserve since it has tamped down expectations on interest rates.

Here is IVOL compared with the standard fixed income benchmark iShares Core U.S. Aggregate Bond ETF (AGG) since it launched.

Source: Chart courtesy of


“We manage risk through the use of long options, because with a long option, your downside is defined,” Davis explained. “We still have risk from the TIPS portion of the portfolio; this is not a defined outcome or defined downside, because we do the risk.”

IVOL offers a strategy unique to the ETF wrapper, but that is commonplace on Wall Street, where Davis worked for more than 10 years with Goldman Sachs and on its trading desk.

Because of its use of options, IVOL carries a pricey expense ratio at 0.99%, a consequence of the underlying trading. The fund trades at a 60-day spread of 0.17%, which brings the buy-in price up above 1%.

However, this is a unique fixed income product; it is about hedging—a good tool for any investor. And its asset gathering is a testament to that.

“This is for investors who are seeking to hedge the risk of an increase in fixed income volatility, because it's long options,” Davis noted. “We are long fixed income volatility. It's the first ETN [exchange-traded note] or ETF that we're aware of that is actually long fixed income volatility.”

“All the other products out there that use options are focused on the equity markets,” she added. “So I believe this is the first-of-its-kind ETF in fixed income.”

Drew Voros can be reached at [email protected]



Drew Voros has nearly 30 years' experience in financial journalism. He was a longtime business editor for the Oakland Tribune and sister papers of the Bay Area News Group, and finance writer for the Hollywood trade publication Variety. Voros' past roles have also included editor-in-chief at and ETF Report.