September 11, 2007 at 2:00 pm by Tom Lydon
As the markets and exchange traded funds (ETFs) continue to experience high volatility, many investors’ eyes are on the Market Volatility Index (VIX). The VIX has an inverse relationship with the performance of stocks and ETFs in that as they decline, the VIX rises. So many investors have been asking for an ETF that tracks the VIX as another way to benefit from a market decline.
While this might be nice in theory, Michael Bommarito for ETF Central says too many obstacles are in the way to develop a VIX ETF. For one, the VIX is not very liquid. For two, the VIX is designed as a theoretical price, not an asset like commodities and bonds that recently have been included in ETFs. However, analysts said commodity ETFs would never work either and yet, they’re here to stay. So, perhaps a VIX ETF will roll out eventually, but it more than likely would have a high expense ratio to compensate for its unstable structure. Do you think a VIX ETF is around the corner? If so, would you be interested?
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January 22nd, 2008 at 6:18 pm
A VIX ETF is possible, because it can be replicated by options.
April 14th, 2008 at 8:18 pm
A VIX ETF would be a great hedging or speculation tool.
May 21st, 2008 at 4:31 pm
The VIX index is an indicator that moves in a range. It’s pretty volative but it is not possible to have minus volatility. The VIX has never been over 45 in the last 25 years.
The solution : An ETF structured with bonds and options/futures. With the funds you buy a certain amount of bonds to ensure capital preservation and to produce income in order to pay management steadily, based on AUM. With a portion of capital, determined on the actual VIX level you increase or decrease your exposure to the VIX, by buying/selling options or futures. This needs much more monitoring than a normal ETF and more fees. I’ll add that computer program could run a ETF like this one pretty easily if programmed correctly and this system would require a lot less day to day monitoring than an average active ETF.