Fund guru who won big with inflation ETF is now making opposite bet

Nancy Davis, CIO and portfolio manager of Quadratic Capital Management, is building a track record of identifying bubbles in the market.

CNBC

• A new ETF from Nancy Davis is betting on deflation ahead, cutting against a market consensus fixated on rising prices.
• BNDD is a bet on Japanification - the fund should gain most if a low-growth, low-rates regime comes to US.
• The options portion of the ETF promises exposure to interest rate derivatives not often available to retail investors.
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A new ETF from influential hedge fund manager Nancy Davis is betting on deflation in the near term, cutting against a market consensus that has spent months fretting over rising prices.

The Quadratic Deflation ETF, run by Davis herself, will hold long-dated Treasuries as well as a mix of options, Quadratic Capital Management said in a statement. The fund has an expense ratio just under 1%.

Trading under the ticker BNDD, the ETF is explicitly a bet on Japanification - that is, the fund should gain most if a low-growth, low-rates regime comes to America.

"Some investors have expressed concerns that the US will experience an environment similar to Japan given the debt increase and labor market," Davis said in a statement. "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."

The company is also pitching investors on a democratization angle. The options portion of the deflation ETF promises exposure to rarer over-the-counter interest rate derivatives not often available to retail investors.

Davis made headlines in January when her inflation-hedging ETF hit $1 billion in assets under management, in a clear signal of investor fear. Her swift rise to prominence led Insider to put Davis on our Top 100 People Transforming Business list for North America.

But while Davis is now getting involved in betting on deflation, the conventional wisdom on future prices has remained much the same.

In fact, a Citi survey of big family offices and ultra-rich individual investors released on Tuesday found that 30% put inflation at the top of their list of concerns over the next 12 months, ahead of COVID-19 at 23% and social unrest at 17%.

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