BC: VOLATILITY BUBBLE
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VelocityShares, a startup exchange-traded note firm co-founded by Greg King, who helped launch the iPath ETNs at Barclays, launched six VIX-related ETNs that are backed by Credit Suisse, including the first that offer investors double exposure.
VelocityShares, which plans to be a “white label” issuer of ETNs partnering with different banks to bring products to market, is charging various expense ratios on its offering. It has chosen to match iPath, the market leader in VIX-related ETNs, on products that compete directly.
The new securities and their expense ratios are:
•VelocityShares Daily 2x VIX Short Term ETN (NYSEArca: TVIX), 1.65 percent
•VelocityShares Daily 2X VIX Mid Term ETN (NYSEArca: TVIZ), 1.65 percent
•VelocityShares Daily Inverse VIX Short Term ETN (CDNX:XI.V - News), 1.35 percent
•VelocityShares Daily Inverse VIX Mid Term ETN (NYSEArca: ZIV), 1.35 percent
•VelocityShares VIX Short Term ETN (NYSEArca: VIIX), 0.89 percent
•VelocityShares VIX Mid Term ETN (NYSEArca: VIIZ), 0.89 percent
The launch follows the surprising success of VIX-linked ETNs from iPath, which is part of Barclays Capital. iPath launched ETNs linked to short- (NYSEArca:VXX - News) and midterm VIX (NYSEArca:VXZ - News) futures in 2009. Those products have gathered more than $2.5 billion in assets, making them among the fastest-growing new exchange-traded products on the market. iPath, the largest ETN family, with more than $5 billion in assets, charges 0.89 percent on both VXX and VXZ.
The VelocityShares products join a growing number of products on the market or in the pipeline as investors grapple with a "risk-on/risk off" market that has characterized much of the trading since the stock market collapse in 2008-2009. Traders use VIX products to hedge their portfolios against volatility in the market.
Growing Competition
The iPath Inverse S&P 500 VIX Short-Term Futures ETN (NYSEArca:XXV - News)—launched in July, and has around $54 million in assets.
Citigroup recently launched a volatility linked product, the C-Tracks Citi Volatility Index ETN (NYSEArca:CVOL - News). CVOL has gathered about $18 million and has an expense ratio of 1.15 percent.
The least expensive VIX-related products so far are two products that are still in registration with the Securities and Exchange Commission.
They are the ProShares VIX Short-Term Futures ETF (NYSEArca: VIXY) and the ProShares VIX Mid-Term Futures ETF (NYSEArca: VIXM); both will cost investors 0.85 percent a year.
Also, the Jefferies S&P 500 VIX Short-Term Futures ETF (NYSEArca: VIXX) has a planned annual management fee of 0.89 percent of assets, according to the company’s latest filing with the Securities and Exchange Commission.
Designed For Traders
Importantly, none of these VIX ETNs tracks the performance of the actual VIX Index, formally known as the CBOE Volatility Index. Rather, they track the performance of futures linked to that index.
VelocityShares’ short-term products track futures dated out one or two months; the midterm products track futures dated between four and seven months out. As a general rule, futures linked to the VIX index tend to be less volatile than the VIX itself.
As with all leveraged and inverse products, the double exposure and single-inverse exposure VelocityShares products won’t deliver twice or the simple inverse over long periods of time. They are designed to deliver leverage on a daily basis. Due to compounding, their long-term returns may vary from that multiple significantly.
For the VelocityShares, that may not matter. VelocityShares set up shop a little over a year ago with the goal of developing ETPs for the trading community. It isn’t looking for long-term investors in its products.
In a recent regulatory filing outlining the products, the company stressed that its new products are designed for more sophisticated players in the market. |
