ETF of the Week: IVOL

Inflation is everywhere and is being felt by consumers across the board, in grocery prices, gas prices, housing prices, and in the labor market with increasing labor costs. Add into the mix continuing supply chain issues, and Lydon doesn’t believe that inflation is going to go away anytime soon.

“Inflation can eat away at your purchasing power, and with that it can eat away at your portfolio if you don’t get decent returns,” explains Lydon. “It can also work against the fixed income portion of your portfolio if the Fed is forced to increase interest rates.”

IVOL isn’t a new ETF, but it is one that has brought in more inflows in the last year as investors and advisors look for ways to hedge their portfolios against inflation. With the Fed signaling the potential for multiple increases in interest rates this year, IVOL is positioned in a way such that it can appeal to any number of investors, from stocks to fixed income.

Lydon explains that IVOL can be a great fund for investors who are worried about valuations in the domestic equity markets, as it has very low correlation to the S&P 500 or the Dow Jones Industrial.

“You can take money off the table, put it into something like this, which is getting currently almost a 6% yield,” Lydon said.

Investors have enjoyed decades of low interest rates, but that all looks very likely to be coming to an end this year; it means a wealth of money currently tied to the U.S. Aggregate Bond Index is now at risk. Investors are currently responding by moving to cash, moving their money into short-term short-duration fixed income ETFs that are actively managed, or else moving the money out of fixed income entirely and instead putting it into equities utilizing dividend strategies.

“Here’s an opportunity to get decent returns, keeping up with inflation, and keeping it relatively safe,” Lydon explained, but cautioned that it is an ETF and therefore will still be subject to some volatility related to the market, as any stock would.

Jaffe discusses the feast or famine nature of the fund in the last two years and that while it was a top 10 performer it its class in 2020, it was a bottom 10 performer in 2021. However, Lydon counters that if investors believe inflation is going to be an intrinsic part of life for the next two years or so, it’s a good fund to hedge with.

“If you’re looking for safety, whether it’s for your equity portion of your portfolio or the fixed income portion of your portfolio and you’re getting a decent yield, that’s something to consider,” Lydon says.

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