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New VIX ETFs Could Be Something To Talk About

by
May 4, 2016 8:50 am
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Nearly as exchange-traded products that attempt to track the VIX, or other volatility gauges, have been around, these products have been heavily criticized and scrutinized. The iPath S&P 500 VIX Short-Term Futures ETN (IPATH SP 500 VIX SHORT TERM FUT ETN (NYSE: VXX)), a favorite of hedge funds and other professionals, is a prime example of the aforementioned theme.

VXX, an exchange-traded note, or ETN, which follows a basket of CBOE Volatility Index futures, has been around since January 2009. Pull out a monthly chart of VXX, and it becomes clear that if not for some reverse splits along the way, a hallmark of other volatility ETPs as well, VXX would have long ago hit zero.

Over the years, other volatility ETPs have come to market with some claiming to be better volatility mousetraps only to show traders that these products are complex, subject to reverse splits, corrective distributions and the like.

Related Link: Sustainable Investing With A New ETF

Maybe, just maybe the volatility ETP game is about to change for the better Tuesday's launch of the REX VolMAXX Long VIX Weekly Futures Strategy ETF (BATS: VMAX) and the REX VolMAXX Inverse VIX Weekly Futures Strategy ETF (BATS: VMIN).

“VMAX and VMIN are the first regulated investment company funds to invest in VIX futures, and seek to track movements in the VIX Index by maintaining a weighted average time to expiry of their investments in VIX futures contracts of less than 30 days at all times,” according to a statement issued by Connecticut-based RexShares.

VMAX And VMIN

CBOE introduced weekly futures in July 2015 and those new tools could make VMAX and VMIN better ways for traders to put on VIX exposure.

“CBOE introduced weekly expirations for VIX futures in July 2015. The shorter time horizon found with weekly VIX futures contracts should result in a higher correlation and beta to the true daily price of the VIX Index. The long fund (VMAX) seeks opportunities that arise should the VIX spike upward while the inverse fund (VMIN) seeks to gain as the VIX falls. Both funds will be actively managed with the objective of being fully invested in VIX futures at all times,” according to RexShares.

The new RexShares ETFs are the latest rookie funds to head to BATS.

“Bats ranks as the top exchange operator for ETF trading with the Bats Exchanges – BYX, BZX, EGDA, EDGX – executing 25.8 percent of all ETF trading for the month of March 2016. Bats was the #1 U.S. market for ETF trading and the #2 U.S. market for overall equities trading for every month of 2016,” according to Kansas City-based BATS.


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