Nancy Davis

Nancy Davis is the founder and CIO of Quadratic Capital Management, a firm she started in 2013 after spending about a decade at Goldman Sachs. The firm's flagship product is IVOL, the Quadratic Interest Rate Volatility and Inflation Hedge ETF, which gives investors exposure to TIPS and interest rate volatility through long options positions. It's the kind of institutional-grade strategy that was previously inaccessible to retail investors, now wrapped in an ETF. On this episode of Behind the Ticker, Nancy joins Brad to explain how IVOL works, why it looks nothing like what's already in your portfolio, and how the firm has built a differentiated product in a crowded fixed income space.

From Goldman Sachs to Building Something Different

Nancy spent roughly 10 years at Goldman Sachs before founding Quadratic, and she's now been running her own firm for more than a decade. She describes the leap as the American dream, noting that starting a firm means constantly doing things you've never done before. The learning curve is steep, and knowing when something isn't working and when to pivot is as important as the initial idea. What's clear from the conversation is that Quadratic wasn't built to compete in crowded ETF categories. IVOL was designed to do something genuinely different.

How IVOL Actually Works

IVOL combines two distinct exposures. The first is TIPS (Treasury Inflation-Protected Securities), which provide inflation protection and a baseline of income. The second is long options positions on interest rates, specifically targeting interest rate volatility. This is the institutional piece that makes IVOL unique. The fund is long options only, meaning the maximum downside on the options component is limited to the premium paid. But when interest rate volatility spikes, like during Silicon Valley Bank week when IVOL was up 16% in a couple of days, those options can generate asymmetric upside.

Nancy explains the risk profile carefully. Because the options are long positions, the fund doesn't face margin calls or the obligation to fund additional cash, unlike strategies that use linear derivatives or short options. The defined downside (premium at risk) paired with potentially unlimited upside is the core structural advantage. The trick, as Nancy puts it, is monetizing those moves when they happen, taking profits during spikes while maintaining ongoing exposure for the next event.

The fund is actively managed, meaning Nancy and her team can adjust positions whenever they see fit. They tend to take more profits when options are working, banking gains during volatility events rather than riding them all the way back down. In hindsight, Nancy says she wished they'd taken even more profit during Silicon Valley Bank week, but the discipline of active profit-taking is built into the process.

Why IVOL Doesn't Look Like Anything Else in Your Portfolio

Brad and Nancy discussed why IVOL has attracted significant assets (it's been one of Quadratic's major successes in fundraising). The answer comes down to genuine differentiation. Most fixed income ETFs are variations on the same theme: you own bonds of different durations and credit qualities, and they all behave more or less similarly. IVOL's correlation profile is genuinely different because interest rate volatility doesn't move in lockstep with bond prices, equity markets, or credit spreads. It's accessing a dimension of the market that most retail and advisor portfolios simply don't have exposure to.

Nancy notes that the product has paid a 30 basis point monthly distribution for over five years, providing consistent income. She's careful about using the word "yield" (the SEC has specific rules about that terminology), but the distribution track record is worth noting for income-oriented investors. Some TIPS ETFs go through periods without paying distributions at all, so the consistency is a differentiator.

On the tax efficiency front, Nancy mentions that IVOL uses a Bloomberg TIPS index inside the ETF for Treasury trading to squeeze every basis point of efficiency. She's not aware of another ETF doing this particular implementation, which reflects the level of structural detail the team puts into product design.

Where It Fits in a Portfolio

Nancy positions IVOL as a complement to traditional fixed income, not a replacement. It fits alongside an aggregate bond allocation, providing exposure to inflation and interest rate volatility that a standard bond fund doesn't capture. The portfolio works best as a diversifier that adds genuine non-correlation, which is the entire point. Nancy encourages investors to check out Quadratic's website, where they've built extensive educational materials including white papers and presentations that walk through who the product is for, where it works best, and in which environments it's most favorable.

Key Takeaways

• IVOL combines TIPS exposure with long interest rate volatility options, providing inflation protection plus asymmetric upside during rate volatility events. During Silicon Valley Bank week, IVOL gained 16% in a few days.
• The fund is long options only, so downside on the options component is limited to premium paid, while upside during volatility spikes is potentially unlimited.
• IVOL has paid a 30 basis point monthly distribution for over five consecutive years, providing consistent income that some TIPS ETFs can't match.
• Nancy founded Quadratic in 2013 after a decade at Goldman Sachs. The firm was built specifically to bring institutional-grade rates and volatility strategies to the ETF wrapper.
• The fund is positioned as a complement to traditional fixed income, adding genuine non-correlation through exposure to interest rate volatility that standard bond funds don't capture.

Listen to the full conversation on Spotify, Apple Podcasts, or YouTube.