We spent some time this morning in our ETF Fund/Flows piece covering the fact that a handful of “Long Volatility” ETPs are all trading at all-time lows today, but there’s another VIX-linked inverse product that’s been on the rise recently.
Not only is tied to the VIX itself trading at lower levels lately, but the presence of “contango” in the VIX futures market has led to popular ETPs like the VXX falling precipitously over the long term. Contango has historically proven itself to have negative returns on Futures based “Long Volatility” ETPs over time — not to mention many leveraged commodity products as well.
On the other hand, an under-covered “Inverse Volatility” ETP that we have not previously mentioned in this space popped up this morning, XIVH (VelocityShares VIX Short Volatility Hedged ETN, Expense Ratio 1.30%). The fund only debuted in July of this year and remains small in terms of asset size $31 million and average daily trading volume (just 500 shares) but it has nonetheless done well lately with the fall in the VIX.
As of data provided 11/18/16, we see that the underlying portfolio of XIVH has a significant 93% weighting to “Short Volatility” and 7% weighting to “Long Volatility.” According to the fund’s investment strategy provided by ETFdb.com, the index that XIVH tracks is known as the “S&P 500 VIX Futures Short Volatility Hedged Index” which “Seeks a target exposure of a 10% two times leveraged long position and a 90% unleveraged short position in the Short-Term Futures Index. That results in a net short position in VIX futures.”
Clearly at the present time, XIVH is leaning shorter than its target exposure and thus benefitting from market conditions favoring a depressed VIX.
Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, Paul Weisbruch, does not endorse or recommend any issuer or security mentioned herein.
He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.