Shares are expected to cost $25 each, with a fee of 0.99% after a waiver -- a far cry from the hedge fund version, which carried a minimum investment of $1 million.
Quadratic will actively manage the product rather than track a benchmark, which could make gathering assets an uphill climb. Higher costs and the failure of many active funds to beat the market have sapped their appeal, according to Eric Balchunas, analyst at Bloomberg Intelligence, who estimates they represent just 2% of U.S. ETF assets.
Investors have been piling into smart-beta products instead, which blend active and passive in rules-based strategies designed to outperform traditional benchmarks, said Balchunas.
The other challenge is attracting retail investors to an exotic tail-risk strategy at a time when low volatility has been engulfing markets -- though this month’s moves may have quickened appetites.
The ETF seeks to provide inflation-protected income, while hedging against fixed-income volatility, large equity sell-offs and even depreciating real estate, according to a fact sheet.
While billionaire Jeffrey Gundlach recently advocated going long rates volatility at New York’s Sohn Investment Conference, there are just a handful of ETFs designed to make money off credit swings or tail hedges, none of which have been runaway successes.
For Davis, the challenge isn’t convincing mom and pop but rather institutions who still consider the booming instruments to be index-replicating vehicles for short-term trading.
“The ETF technology is just better for investors and that’s going to be something we’ll need to educate the institutions about,” she said.
This article provided by Bloomberg News.