This is an actively managed ETF that combines Treasury Inflation-Protected Securities (TIPS) with options linked to yield curve volatility to hedge against inflation and interest rate swings. It seeks to address inflation while also preparing for sharp moves in interest rates.

It suits investors who want to hedge inflation and interest rate changes together and are willing to accept the complexity and cost of an options strategy.

The ETF is managed by Kraneshares using an active management approach.

The fund invests most of its portfolio in inflation-protected Treasuries to address inflation, and allocates a portion to over-the-counter options linked to yield curve volatility, aiming to profit when rates move sharply or the curve steepens. It hedges inflation and interest rate changes together, but it is exposed to changes in option value.

• TIPS combined with interest rate volatility options
• Simultaneous hedge against inflation and interest rates

Assets under management (AUM) stand at $214.6M, and the expense ratio is 0.98% per year.

The main point of comparison is that, compared with a plain TIPS ETF, this fund adds interest rate volatility options to prepare for sharp rate moves.

This strategy depends on inflation and the path of the yield curve. When the curve steepens or interest rate volatility rises, option values increase and the fund tends to be strong, while it tends to be weak when the curve flattens or volatility declines. Option value has a large impact on performance.

For inflation and interest rate hedging products, fund flows vary with the price and rate environment and with hedging demand, and money sometimes moves into this group of products when concerns about inflation and rate changes grow. It is also worth noting that performance can differ greatly depending on the yield curve and volatility environment.

Its inflation and interest rate hedge is a strength, while changes in option value, the risk of curve flattening and strategy complexity are points to consider.

For exposure to inflation-protected Treasuries without options, direct substitutes include TIP, and for low-cost TIPS exposure, products such as SCHP are also worth comparing. For short-term TIPS exposure, products such as STIP can be considered as well. The three products shown in the table, TIP, SCHP and STIP, all invest in TIPS without options and therefore have no interest rate volatility hedge, while this ETF is differentiated by combining TIPS with interest rate volatility options.

Here are the points to review before investing in IVOL. The inflation and interest rate hedge is attractive, but changes in option value, the risk of curve flattening and strategy complexity need to be checked in advance. It is also a good idea to compare it with plain TIPS products.

The main variable for performance is that a decline in interest rate volatility and a flattening yield curve can reduce option values and lead to losses, and the complex option structure makes performance hard to gauge intuitively. If the rate environment moves against the strategy, the fund may underperform plain TIPS.

It is a suitable candidate for investors who want to hedge inflation and interest rate changes together. To invest in inflation-protected Treasuries without options, consider products such as TIP and SCHP, and to add an interest rate volatility hedge, it is advisable to choose this product after understanding its strategy.