ETN tied to VIX vaporizes as S&P rises on job data

SEP 09, 2012
Positive payroll data and progress in resolving Europe's financial woes gave a boost to the U.S. stock market last week but sent the most popular volatility hedge to record lows. The S&P 500 climbed 2% to 1,432.12 last Thursday after data on private sector employment came in ahead of expectations and the European Central Bank unveiled its bond-buying plan. But the $2 billion iPath S&P 500 VIX Short-Term Futures exchange-traded note (VXX) was down 10.5% and trading at an all-time low of just under $10 a share. The sharp drop comes after investors poured $703 million into the ETN in August, pushing its assets to $2.058 billion, the second-highest amount of total assets ever for the ETN. In September 2010, it topped $2.3 billion in assets, according to Lipper Inc.

STEADY DECLINE

Sharp drops are nothing new for the ETN, which invests in short-term futures contracts tied to the Chicago Board Options Exchange Market Volatility Index, the most popular measure of implied volatility. In fact, since the ETN was launched in January 2009 at $400 a share, it has done nothing but head downward. A $10,000 investment at the ETN's inception would be worth about $250 today. Inexplicably, the ETN's performance hasn't dissuaded investors. Over the past three years, more than $5.8 billion has flowed into VXX, according to Lipper. [email protected] Twitter: @jasonkephart

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