ProShares today launched two new exchange traded funds (ETFs) that track futures on the CBOE Market Volatility Index, more popularly known as the VIX. The move marks the first time that ETFs tied to the market’s “fear index” will trade in the United States.
The VIX measures the 30-day volatility of an index of large-cap stocks. In short, it’s a calculation based on how volatile investors believe the markets will be in the coming 30 days. The S&P 500 and the VIX have a negative correlation: when the VIX is rising, the S&P generally declines; when the VIX is declining, the S&P generally rises.
As a result of the recent volatility seen in the markets, investors are more interested than ever in hedging such volatility. ProShares VIX Short-Term Futures (NYSEArca: VIXY) will track a basket of two near-term VIX futures; ProShares VIX Mid-Term Futures (NYSEArca: VIXM) will track a basket of mid-term futures.
There are currently several exchange traded notes (ETNs) tied to the index. These are used by short-term traders and those whose time frame for investing is measured in days rather than years.
The new funds won’t have the credit risk of ETNs, which are unsecured debt securities that depend on a single company’s ability to pay up. Both funds will charge 0.85%.
Van Eck is expanding their product range for commodities and enhancing the method of their rolling of futures contracts.
The proposed Van Eck CM Commodity Index Fund (NYSEArca: CMCAX) invests in futures across 26 different types of commodities. Although this one’s a mutual fund, Van Eck also plans on enhancing its ETF family as well. The provider also plans on spreading its automatic rolling of futures contracts over a longer period, says Murray Coleman for Barron’s. [What’s Ahead for Active ETFs In 2011?]
Since funds don’t want to actually take delivery of the goods, index-based mutual funds and ETFs systematically sell old contracts before they’re about to expire and buy new ones. CMCAX tracks an index that’s designed to spread pricing risks across a bigger set of futures contracts with differing expiration dates, according to Van Eck.
Tisha Guerrero contributed to this article.