New York-based Ionic Capital Management has made its ETF debut with a fund that aims to help investors buffer their portfolios against elevated and rising inflation.

US inflation surged to a four-decade high of 8.6% in May.

The Ionic Inflation Protection ETF (CPII US) has been listed on NYSE Arca, coming to market in partnership with white-label ETF platform Tidal ETF Services.

The strategy is timely with the US Labor Department recently announcing that consumer inflation in the US surged to a four-decade high of 8.6% in May, its highest level since 1981.

The actively managed fund invests in short-duration Treasury Inflation-Protected Securities (TIPS), pay-fixed inflation swaps based on the Consumer Price Index, and pay-fixed swaptions on US interest rates.

The TIPS segment of the portfolio is designed to protect against elevated inflation, while the swaps and swaptions are added to deliver enhanced returns if interest rates or the inflation rate rise above key levels defined in these derivatives.

The ETF comes with an expense ratio of 0.70%.

Doug Fincher, Portfolio Manager at Ionic Capital Management, said: “While the world has been in a deflationary environment for the past few decades, it now appears that period has ended. We have shifted to an inflationary environment that will persist at elevated levels even if current readings ultimately prove to be peak levels. It is critical that institutional and retail investors find ways to mitigate the destructive elements of sustained elevated inflation. Now is the time to seek protection from the destruction of purchasing power caused by inflation.”

John Richardson, Chief Operating Officer at Ionic Capital Management, added: “Investors have traditionally viewed fixed income as providing diversification to their equity exposure. However, there is a regime change to a higher inflationary environment underway where fixed income may actually be risk additive. Investors are struggling to find investments that will help their portfolios in this type of market. With the launch of CPII, we are able to bring inflation protection strategies historically only available in our private funds to the ETF space accessible to a broader universe of investors. CPII will give RIAs, family offices, institutional and retail investors a fixed income alternative for those who are worried about the value of their assets after adjusting for inflation.”