Managed by Nancy Davis, Quadratic Capital Management’s Founder and Chief Investment Officer, 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 U.S. Treasuries and options.
In the U.S., government debt levels have soared recently amid multiple rounds of fiscal stimulus in response to the Covid-19 pandemic. Other recent trends include an aging population, advancements in technology, tax increases and increasing productivity.
“Some investors have expressed concerns that the U.S. 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,” said 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,” said Davis, portfolio manager of the Quadratic Deflation ETF.
The BNDD portfolio is mainly comprised of long-dated U.S. 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.
About Nancy Davis
Nancy Davis founded Quadratic Capital Management in 2013 and is the portfolio manager for Quadratic’s ETFs.
Ms. Davis has been the recipient of numerous industry recognitions. Barron’s named her to their inaugural list of the “100 Most Influential Women in U.S. Finance.” Institutional Investor called her a “Rising Star of Hedge Funds.” The Hedge Fund Journal tapped her as one of “Tomorrow’s Titans.”
She began her career at Goldman Sachs where she spent nearly ten years, the last seven with the proprietary trading group where she rose to become the Head of Credit, Derivatives and OTC Trading. Prior to starting Quadratic Capital Management, she served as a portfolio manager at Highbridge Capital Management. She later served in a senior executive role at AllianceBernstein. Ms. Davis writes and speaks frequently about markets and investing. She has been published in Institutional Investor, Absolute Return and other industry journals, and has contributed articles to two books. She has been profiled by Forbes, and interviewed by Barron’s, The Economist, The Wall Street Journal, and The Financial Times among others. Ms. Davis is a frequent guest on television including CNBC, Bloomberg, CNN, Sina and ABC.
About Quadratic Capital Management
Quadratic Capital Management is an innovative asset management firm founded in 2013 by Nancy Davis. The firm has utilized its significant expertise in the interest rate volatility and options markets to construct The Quadratic Deflation ETF (BNDD) in ways that help mitigate downside risk, while maintaining upside potential. The firm is based in Greenwich, Conn.
The fund’s investment objectives, risks, charges and expenses must be considered carefully before investing. The prospectus contains this and other important information about the company and may be obtained by calling +1-888-BNDD-007. Please read it carefully before investing.
Diversification does not ensure a profit or guarantee against a loss. Investing involves risk. Principal loss is possible. There is no guarantee the Fund will achieve its investment objectives. The Fund’s derivatives investments involve risks. The derivatives used by the Fund may give rise to a form of leverage. Leverage magnifies the potential for gain and the risk of loss. The prices of options can be highly volatile and the use of options can lower total returns. OTC options generally have more flexible terms negotiated between the buyer and the seller. As a result, such instruments generally are subject to greater credit risk and counterparty risk. OTC instruments also may be subject to greater liquidity risk.
The Fund does not seek to mitigate credit risk, non-curve interest rate risk, or other factors influencing the price of U.S. government bonds, which factors may have a greater impact on the bonds’ returns than the U.S. interest rate curve or deflation. There is no guarantee that the Fund’s investments will eliminate or mitigate curve risk, deflation risk on long positions in U.S. government bonds. In addition, when the forward U.S. interest rate curve steepens, the Fund’s investments will generally underperform a portfolio comprised solely of the U.S. government bonds. In a steepening curve environment, the Fund’s hedging strategy could result in disproportionately larger losses in the Fund’s options as compared to gains or losses in the U.S. government bond positions attributable to interest rate changes. The Fund’s exposure to derivatives tied to interest rates subjects the Fund to greater volatility than investments in traditional securities, such as stocks and bonds. Investing in derivatives tied to interest rates, including through options tied to the shape of the swap curve, is speculative and can be extremely volatile. The Fund is non-diversified.
BNDD is distributed by SEI Investments Distribution Co. (SIDCO), 1 Freedom Valley Drive, Oaks, PA 19456. The Fund’s sub-adviser is Quadratic Capital Management LLC (Quadratic). SIDCO is not affiliated with Quadratic. Neither Quadratic nor SIDCO or their affiliates provide tax advice. Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support the promotion or marketing of the matters addressed herein; and (iii) you should seek advice based on your particular circumstances from an independent tax advisor.
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