Quadratic Interest Rate Volatility and Inflation Hedge ETF (IVOL) is a non-diversified actively managed ETF that is designed to hedge the risk associated with increased fixed income volatility and higher inflation, explains Marty Fridson, a dividend investing strategist and editor of Fridson/Forbes Income Securities Investor.
In addition, IVOL seeks to profit from a steepening yield curve, whether a result of rising long-term interest rates or falling short-term interest rates. IVOL is also unique in that the ETF is long interest rate volatility through its access to the OTC fixed income options market.
The fund provides investors with inflation-protected income through innovative strategies that use options, swaps, Treasury Inflation-Protected Securities (TIPS), and the purchase of third-party ETFs. As of 08/01/22, IVOL’s portfolio was dominated by the SCHWAB U.S. TIPS ETF, accounting for 81.58% of total holdings.
We believe this ETF makes sense for income investors, in that it provides a hedge against inflation and volatility for fixed income portfolios; acts as a market hedge for equity portfolios, especially during large sell-offs; and may hedge the risk of declining real estate prices tied to rising interest rates.
The average credit rating of the portfolio is AAA (e.g. U.S. Treasury Securities), with an effective duration of 6.23 years. Market value total return performance was a strong +14.58% for full-year 2020 and nearly flat at -0.32% for full-year 2021.
For the year-to-date period ended 06/30/22, the ETF’s market price total return was -3.91%. IVOL’s distributions are taxed as ordinary income. This ETF investment is suitable for all risk portfolios. Buy at $25.00 of lower for a 3.22% annualized yield.
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