KraneShares Quadratic Deflation ETF

KraneShares Quadratic Deflation ETF (BNDD) is an actively managed fund that pairs long-term U.S. Treasuries, held mostly through a Vanguard Treasury fund, with options that gain value if the gap between short- and long-term interest rates narrows or flips. It aims to profit from deflation, slower growth or falling long-term rates. It costs 1.02% a year and lost money in three of its four full calendar years from 2022 to 2025.

• Over the year to Oct 27, 2026, BNDD returned -0.1%, 8th of 8 among similar funds.
• Its 5-year annualized return was -4.7%.
• Its worst full calendar year was 2022 (-17.5%); its best was 2023 (+4.1%).
• The deepest fall in its price history was 31.7% (Dec 3, 2021 to Sep 2, 2025), not yet recovered.

As of Jun 30, 2026, the fund held 1 securities; the ten largest made up 77.4% of assets.

• Over the three months to Jun 30, 2026, investors added a net $34.0M (creations minus redemptions, per the N-PORT report).
• Monthly total returns reported for that quarter: +1.68%, +1.18%, -0.54%.

BNDD does not track an index. Its sub-adviser, Quadratic Capital Management, picks the holdings using its own judgment. Most of the money goes into U.S. Treasuries, bought directly or through other funds. As of June 30, 2026, 77.4% of assets sat in the Vanguard Long-Term Treasury mutual fund. Long-term bonds react strongly to interest rates: their prices fall when rates rise.

The rest of the strategy uses options tied to the shape of the SOFR curve. SOFR (the Secured Overnight Financing Rate) is a benchmark borrowing rate, and the curve shows rates across different time periods. The fund buys options, spreads and "butterflies" (combinations of options that cap both gains and losses). These gain value when the curve flattens or inverts. They lose value, or expire worthless, when it steepens. As of June 30, 2026, it held three options on the gap between 2-year and 30-year swap rates, worth 2.2% of assets. The most the fund can lose on them is the premium it paid plus any gains since purchase. The manager generally keeps option premiums below 20% of assets, trims them when they grow and tops them up when they shrink. It also "rolls" expiring positions into new ones.

The options trade over the counter instead of on an exchange. They are not centrally cleared and settle in cash only at expiration. That adds counterparty risk, meaning the risk that the other side fails to pay, as well as liquidity risk. The fund is also non-diversified.

• BNDD charges 1.02% a year, versus an average of 0.86% for the similar funds below (8th of 8, cheapest first).
• Of that, 0.99% is the management fee; the rest covers other fund expenses.
• Using the prospectus's standard example, $10,000 invested would cost about $104 in the first year and $1,248 over 10 years (assuming a 5% annual return).

It is built to pay off in conditions that often hurt stocks, such as deflation and falling long-term rates, and its one-year beta to the stock market was just 0.13 as of October 27, 2026.

BNDD could add exposure that moves differently from stocks. So far, though, it has not cushioned a bad market. It launched in September 2021, so it missed the 2008 and 2020 crashes. In the 2022 bear market it fell 17.4% from April to October, and it lost 17.71% that calendar year, its worst so far. Its deepest drop was 31.7%, from December 2021 to September 2025, and it had not recovered as of October 27, 2026. A retiree who had to sell shares after a fall like that would lock in the loss. The fund pays monthly, with a trailing 12-month yield of 3.61% as of October 27, 2026. It charges 1.02% a year. Past results don't predict the future, and a retirement plan should look at the whole portfolio, not one fund.

Matched by other buffer (defined-outcome) funds, largest first.