Exchange traded funds now offer ways for investors to utilize institutional styled strategies to help ride changing market conditions. For instance, VelocityShares recently launched two new hedged-equity products that help mitigate market volatility.
On Monday, the VelocityShares Volatility Hedged Large Cap ETF (NYSEArca: SPXH) and the VelocityShares Tail Risk Hedged Large Cap ETF (NYSEArca: TRSK) began trading.
SPXH tries to reflect the performance of the VelocityShares Volatility Hedged Large Cap Index, which hedges “volatility risk” in the S&P 500. Essentially, the fund takes a long position in the S&P 500 and a short position in short-term VIX futures, and it tries to target a net neutral exposure. The fund has a 0.71% expense ratio.
The ETF’s current holdings include Vanguard S&P 500 ETF (NSYEARca: VOO) 33.5%, iShares CORE S&P 500 ETF (NYSEArca: IVV) 33.4%, SPDR Trust Series 1 (NYSEArca: SPY) 33.3% and a -18.3% position in S&P 500 VIX Futures VAR L/S Index TRS.
TRSK tries to reflect the performance of the VelocityShares Tail Risk Hedged Large Cap Index, which is designed to hedge the “tail risk” – normal distributions beyond three standard deviation, or more skewed distributions – in the S&P 500. The fund also takes a long position in large-cap equities and a short position in VIX futures. The ETF has a 0.71% expense ratio.
The fund’s holdings include Vanguard S&P 500 ETF (NSYEARca: VOO) 33.5%, iShares CORE S&P 500 ETF (NYSEArca: IVV) 33.5%, SPDR Trust Series 1 (NYSEArca: SPY) 33.4% and S&P 500 VIX Futures Tail Risk Index TRS -19.3%.
According to VelocityShares, TRSK could be costly during normal market conditions due to its slightly long volatility bias, whereas SPXH retains some upside potential during normal market conditions due to its neutral volatility bias.
“Volatility ETPs have proliferated in the last four years, but until now, investors have not had a sophisticated product which would enable them to implement a strategic volatility allocation in one package” Nick Cherney, Chief Investment Officer and co-founder of VelocityShares, said in a press release. “These VelocityShares ETFs are intended to provide a truly institutional quality solution to a vexing problem: how to use volatility to improve portfolio quality.”
For more information on new product launches, visit our new ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.