Connecticut-based investment adviser Rareview Capital has launched a new fixed income ETF that protects investors from both inflationary and deflationary environments.
Neil Azous, Founder & CIO at Rareview Capital.
The Rareview Inflation/Deflation ETF (FLTN US) has been listed on Cboe BZX Exchange and comes with an expense ratio of 0.92%.
The actively managed fund seeks a rate of return that exceeds the rate of inflation over a full business cycle which Rareview estimates to last for approximately 60 months on average.
It aims to achieve this by using its proprietary interest rate model to identify the four potential stages of the business cycle and position its portfolio accordingly.
During expansion, when inflationary pressures are building, and during peak, when inflation is rising above trend, the ETF will typically invest in Treasury Inflation Protection Securities (TIPS) or ETFs that primarily invest in TIPS.
During contraction, when deflationary forces begin to take over, and during trough, before easing Federal Reserve policy reduces the risk of deflation, the ETF will typically hold nominal Treasuries or ETFs that primarily hold these securities.
What makes the ETF distinct, according to Rareview, is that it has access to the full suite of interest rate products, both at the front-end and long-end of the yield curve, as well as cash and derivative instruments. This access allows the fund to potentially benefit more when the business cycle is shifting between regimes by additionally capturing changes in interest rates and the shape of the yield curve.
Neil Azous, Founder & CIO at Rareview Capital, said: “With inflation at a 40-year high and expected to increase further, investors are rapidly losing their purchasing power. That’s why we’re thrilled to be launching FLTN, an ETF that directly aims to address this seminal investment issue.
“We believe portfolio enhancements are necessary to protect purchasing power during periods of inflation and to provide ballast to stock holdings during periods of deflation. Identifying the early vs. late stages of a Federal Reserve tightening cycle is essential for maximizing TIPS and nominal bond performance. Transitioning strategically between regimes can potentially increase returns over a passive fixed income product.”