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Here’s how one expert says the Fed’s emergency rate cut could create a toxic situation where higher prices conflict with coronavirus-stricken growth

Markets Insider

2020-09-03T17:43:13+00:00September 3rd, 2020|

The Federal Reserve on Tuesday handed down an emergency interest rate cut to combat any slowdown the US economy could see from the spreading coronavirus [...]

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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 +1-833-IVOL-ETF. Please read it carefully before investing.

Investing involves risk. Principal loss is possible. Shares of any ETF are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. 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. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer term debt securities. The Fund seeks to mitigate the risk associated with the potential impact of a steepening swap curve (“curve risk”) on the performance of U.S. government bonds by investing in products designed to appreciate in value when the swap curve steepens. The Fund’s use of such instruments is intended to mitigate the curve risk and is not intended to mitigate credit risk, or non-curve interest rate risk. There is no guarantee that the Fund’s investments will completely eliminate the curve or inflation risk of the long positions in U.S. government bonds. In addition, when the swap curve flattens, the Fund’s investments will generally underperform a portfolio comprised solely of the U.S. government bonds. In a flattening 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.

There are risks involved with investing in options including total loss of principal. Options investing is not suitable for all investors. This fund utilizes sophisticated options strategies which may not be suitable for all investors. For a more comprehensive discussion of the risks involved in options investing, please review Characterizations and Risks of Standardized Options available at www.theocc.com/about/publications/character-risks.jsp or contact the Options Clearing Corporation directly at 1 N. Wacker Dr., Suite 500, Chicago, IL 60606. (1-888-678-4667).

Based on Bloomberg reporting as of 5/8/2019, IVOL is the only US derivative based ETF to utilize OTC interest rate volatility options.

Definitions.

IVOL 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