Equity gyrations trigger big rise in exchange-traded notes

Equity gyrations trigger big rise in exchange-traded notes
In a little more than two years, 14 ETNs linked to the Exchange Volatility Index have been launched; warning, VIX aren't for kids
APR 11, 2011
Financial advisers looking for a hedge against volatility in the equity markets have a new array of exchange-traded notes to use. Since January 2009, 14 volatility-related exchange-traded notes have come to market, representing $2.1 billion in assets, according to Morningstar Inc. Unlike exchange-traded funds, exchange-traded notes are not portfolios, but rather are non-subordinated debt securities that are tied to the performance of a market index. Because of their structure, they are able to delve into sectors that exchange-traded funds cannot. Over the past two years, providers have rushed to launch exchange-traded notes linked to the performance of futures of the Chicago Board Options Exchange Volatility Index to offer investors a way to hedge equity exposure. Advisers should proceed with caution before using these vehicles, however. "If you have 5% to 10% of a well-diversified portfolio and you are looking to be more active, these products may provide tactical advantages," said Abraham Bailin, an ETF analyst at Morningstar. "But you are opening a whole new can of worms because there are 1,001 ways to use these vehicles and each one taps into a speculative alternative strategy." The leader in the ETN space is Barclays Capital Inc. which was the first to launch VIX-related exchange-traded products in January 2009. Its first two VIX-related exchange-traded notes, the iPath S&P 500 VIX Short-Term Futures ETN Ticker:(VXX) and the iPath S&P 500 VIX Mid-Term Futures ETN Ticker:(VXZ) today have over $2 billion in assets, according to Morningstar. Newer providers in this space are gaining traction. One recent entrant, VelocityShares LLC, entered the market on Nov. 30 with six VIX-related ETNs and has $170 million in assets. One of its ETNs, the $69.5 million S&P 500 VIX Short-Term Futures Index ETN Ticker:(TVIX), has traded 1 million a share a day twice in the past week. “People are directionally trying to hedge equity market moves,” said Nick Cherney, co-founder and chief investment officer of VelocityShares. “TVIX is the most actively traded ETF to be launched in the last two quarters.”

Latest News

SEC prepares to back away from defending climate rule in court
SEC prepares to back away from defending climate rule in court

Acting Chairman Mark Uyeda directed SEC staff to initiate a pause in court while the commission awaits a quorum. The SEC may decide to withdraw from defending itself in a lawsuit over last year's climate disclosure rule.

wealth.com welcomes Kathy Wunderli in private wealth push
wealth.com welcomes Kathy Wunderli in private wealth push

The top estate planning platform's veteran hire will lead its legal team's efforts to develop estate planning, tax analysis, and wealth transfer solutions for ultra-high-net-worth clients.

Morgan Stanley loses $843,000 investor claim stemming from 'gold bar' scam
Morgan Stanley loses $843,000 investor claim stemming from 'gold bar' scam

“If Morgan Stanley had called my client’s son, this wouldn’t have happened,” the investor's attorney said.

LPL welcomes $630M sibling advisor duo from Corebridge
LPL welcomes $630M sibling advisor duo from Corebridge

Meanwhile, Ameriprise has bolstered its own ranks as an LPL defector joins its branch channel in California.

Treasuries fall as Powell reaffirms rate-cut patience
Treasuries fall as Powell reaffirms rate-cut patience

The Fed chair's continued signals to delay policy easing sent 10-year yields higher, with money markets pricing in just one quarter-point cut this year.

SPONSORED Taylor Matthews on what's behind Farther's rapid growth

From 'no clients' to reshaping wealth management, Farther blends tech and trust to deliver family-office experience at scale.

SPONSORED Why wealth advisors should care about the future of federal tax policy

Blue Vault features expert strategies to harness for maximum client advantage.