Volatility ETFs Winning on Fiscal Cliff Turmoil - ETF News And Commentary
November 09 2012 - 9:15AM
Zacks
With Barack Obama’s second term secured, investors are now
zeroing in on the fiscal cliff and it appears as though they don’t
like what they see. Markets fell sharply in the two days after the
election results, while additional reports from Republican
Congressional leaders seem to suggest that we could be in for a
fight as we approach the end of the year.
With this backdrop, investors are racing to rack up their gains,
selling stocks, and hunkering down for the legislative fight that
is now underway. Yet, with the country’s poor fiscal health, one
has to believe that at least some spending cuts and tax increases
will go through meaning that there could be plenty of volatile
trading days ahead as we approach the final days of 2012 (read 4
Low Volatility ETFs to Hedge Your Portfolio).
While this news hasn’t been good for many equities across the
board, it has actually been quite helpful to a certain segment of
the market, volatility. This corner of the investing landscape
generally tracks the ‘fear index’ or the VIX, and it can benefit
enormously when markets are sliding and investor panic is starting
to set in (see Inside the Two ETFs up More Than 140% YTD).
Obviously this has been the case over the past few days, easily
helping many traders who had purchased these products to leap
higher. Still, while many of the funds in this space have been
terrible from a long term perspective, their hedging abilities
during market downturns is nearly unparalleled, suggesting that if
these trends continue, investors should keep a close eye on any of
these four outperforming volatility ETFs as the edge of the fiscal
cliff approaches:
C-Tracks on Citi Volatility Index ETN (CVOL) -
Although this product doesn’t see a great deal in volume or AUM, it
has been a solid performer this week. The ETN has added double
digits in the first week of November, helping to push it off of its
52 week lows.
ProShares VIX Short-Term Futures ETF (VIXY) –
For the only ETF approach in the space, this fund also tracks a
short-term benchmark of volatility and has done quite well this
week too. The fund is up about 5.9% this week, while its solid
volume suggests tight bid ask spreads (see Leveraged ETFs and
Volatility: A Powerful Mix).
VelocityShares Daily Long VIX Short-Term ETN
(VIIX)- Another ETN targeting short-term volatility, this
product has little in assets but a pretty solid volume level. The
note is up about 6% this week while its expenses are on the low end
at 89 basis points a year.
iPath S&P 500 VIX Short-Term Futures ETN (VXX)
– Easily the most popular and well-known of the volatility
products on the market, VXX has AUM over $1.7 billion and average
volume above 35 million shares a day. This product sees incredibly
tight bid ask spreads and is up about 5.8% over the past week.
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C-TRAC VOLAT IX (CVOL): ETF Research Reports
VEL-VIX ST (VIIX): ETF Research Reports
PRO-VIX ST FUT (VIXY): ETF Research Reports
IPATH-SP5 VX ST (VXX): ETF Research Reports
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