Stocks fell in early trading, adding to yesterday’s losses as investors assess the possibility of a 100 basis point Fed rate hike later this month. Inflation data released Wednesday confirmed that consumer prices continued to climb in June, compounding concerns that aggressive Fed tightening will push the economy into a recession.
While all attention is focused on inflation right now, recession cycles come with a more substantial risk for deflation. Today we’re focusing on an investment that provides access to a part of the market (until recently, reserved exclusively for large institutions) that can help hedge a portfolio against the effects of deflation and the compression of the yield curve.
Extreme over-indebtedness has been dramatically worsened by multiple rounds of fiscal stimulus in response to the global pandemic. Deflation may be the most challenging economic environment for investors.
KraneShares Quadratic Deflation ETF (BNDD) is a fixed income ETF that seeks to benefit from 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 US Treasuries and options.
The BNDD portfolio is composed primarily of long-dated US treasury bonds. In addition to bonds, the portfolio includes long-only options on the shape of the US interest rate curve. As interest rates decline, the bonds should appreciate in price. The options provide exposure to the spread between interest rates at different points in time. As the curve flattens because of lower inflation expectations and/or deflation, the price of the options tends to increase.
BNDD provides a unique access point to OTC fixed income options market, which is typically not available to investors directly. The fund has the potential for enhanced returns in periods of lower growth while options downside is limited to the market value of the options. This strategy can serve as a bond enhancement strategy and works well as a complement to other diversifying investments. Since its inception less than one year ago, BNDD has essentially matched the performance of the S&P 500 with a fraction of the risk.
Should you invest in BNDD right now?
Before you consider buying BNDD, you'll want to see this.
Investing legend, Keith Kohl just revealed his #1 stock for 2022...
And it's not BNDD.
Jeff Bezos, Peter Thiel, and the Rockefellers are betting a colossal nine figures on this tiny company that trades publicly for $5.
Keith say’s he thinks investors will be able to turn a small $50 stake into $150,000.
Find that to be extraordinary?
Click here to watch his presentation, and decide for yourself...
But you have to act now, because a catalyst coming in a few weeks is set to take this company mainstream... And by then, it could be too late.
Click here to find out the name and ticker of Keith's #1 pick...
