Ionic Capital Management has launched the Ionic Inflation Protection ETF (NYSE Arca: CPII) in partnership with Tidal ETF Services. The actively managed fund seeks to generate positive returns during periods of elevated and/or rising inflation and inflation expectations as well as during periods of increasing interest rates and fixed income volatility.
CPII will invest in inflation swaps on the Consumer Price Index (CPI), swap options (or swaptions) on U.S. interest rates, and short-duration Treasury inflation-protected securities (TIPS). This combination provides exposure to elevated inflation and inflation expectations, rising rates, and real yields (nominal yields minus inflation).
This fund will leverage Ionic’s interest rate derivatives expertise while offering daily liquidity and transparency at an attractive fee.
“While the world has been in a deflationary environment for the past few decades, it now appears that period has ended,” said Doug Fincher, portfolio manager at Ionic, in a news release. “We have shifted to an inflationary environment that will persist at elevated levels even if current readings ultimately prove to be peak levels.”
Fincher added in a phone conversation with VettaFi: “There are lots of products out there with inflation in their name, but we don’t see a lot of products that directly tie in with moves in inflation. Everyone’s fixated on inflation right now, but the most astounding thing for us is that the gap between inflation and inflation expectations has only gotten wider. This is designed to fill a hole in existing 60-40 portfolios.”
Also in the release, Ionic chief operating officer John Richardson said: “Investors have traditionally viewed fixed income as providing diversification to their equity exposure. However, there is a regime change to a higher inflationary environment underway where fixed income may actually be risk additive. Investors are struggling to find investments that will help their portfolios in this type of market.”
Added Richardson: “With the launch of CPII, we are able to bring inflation protection strategies historically only available in our private funds to the ETF space accessible to a broader universe of investors. CPII will give RIAs, family offices, institutional and retail investors a fixed income alternative for those who are worried about the value of their assets after adjusting for inflation.”
CPII has an expense ratio of 0.7%.
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