ETF Spotlight on the Direxion S&P 500 Volatility Response Shares (NYSEArca: VSPY), part of an ongoing series.
Assets: $36.7 million
Objective: The Direxion S&P 500 Volatility Response Shares tries to reflect the performance of the S&P 500 Volatility Response Index, which adjusts its composition of S&P 500 stocks and T-Bills in response to volatility in the S&P 500 index.
Holdings: Top holdings include Apple (NasdaqGS: AAPL) 3.4%, Exxon Mobil (NYSE: XOM) 2.3%, Microsoft (NasdaqGS: MSFT) 2.2%, Johnson & Johnson (NYSE: JNJ) 1.7% and General Electric (NYSE: GE) 1.5%.
What You Should Know:
- Direxion Investments sponsors the fund.
- VSPY has a 0.45% net expense ratio.
- The ETF has 502 holdings, and the top ten components make up 17.8% of the overall portfolio.
- Sector allocations include basic materials 3.3%, consumer discretionary 10.2%, financials 15.0%, real estate 1.9%, telecom services 4.0%, energy 9.7%, industrials 11.0%, tech 18.0%, consumer staples 9.5%, healthcare 14.3% and utilities 3.0%.
- The fund is down 5.4% over the past month, down 4.6% over the last three months and up 2.7% year-to-date.
- VSPY is designed to respond to the volatility levels of the underlying indices by adjusting its exposure to equities and U.S. Treasury Bills based on market volatility.
- “The strategy follows a quantitative rules-based equity index that seeks to mitigate risk by dynamically changing total equity exposure based on volatility signals,” according to Direxion.
- As long as the S&P 500 Index Volatility level is below 15%, the underlying index will hold a 100% exposure to stocks.
- However, if the the S&P 500 Index Volatility level reaches 25% or above, the underlying index begins shifting over into the T-Bill, cash component.
Next page: The latest news
The Latest News:
- The CBOE Volatility Index, or VIX, was trading around 25.2 Thursday.
- On Wednesday, the VIX touched its highest level since 2011.
- “Fundamentals are a lot worse than they were a few months ago and as well as problems in the eurozone, China is losing momentum inspiring doom and gloom,” Peter Dixon an economist at Commerzbank said in a Wall Street Journal article. “The expectations that we had at the start of the year aren’t being met and that is feeding into a very glum picture.”
- “More investors are positioning to be long volatility, reflective of general concerns and anxiety in the market about prospects for risky assets,” Anand Omprakash, an equity-derivatives strategist at BNP Paribas SA, said in a Bloomberg article. “With the VIX (VIX) breaching levels not seen since June 2012, many volatility-related instruments have seen increased interest in recent days.”
Direxion S&P 500 RC Volatility Response Shares
For past stories in this series, visit our ETF Spotlight category.
Max Chen contributed to this article.