With the VIX (Volatility Index) plunging to new recent lows today with a low $12 handle, it makes sense to readdress a fund that often flies under the radar from Direxion known as VSPY (Direxion S&P 500 Volatility Response Shares, Expense Ratio 0.45%).
VSPY debuted in January of 2012 and remains notionally small with about $33 million in assets under management while averaging only about 3,300 shares traded daily, but in the context of Volatility in the marketplace, it is an interesting fund nonetheless to permanently have on the radar due to the way it is constructed.
VSPY tracks the S&P 500 Dynamic Rebalancing Risk Control Index, and according to fund literature “follows a quantitative rules-based equity index that seeks to mitigate risk by dynamically changing total equity exposure based on volatility signals.”
Furthermore, Direxion states that “the strategy reallocates exposure between equities and U.S. Treasury Bills based on recent volatility levels of the S&P 500 Index” while it “employs a downside risk mitigation strategy during periods of higher volatility and increases equity exposure when appropriate.”
While most would agree that the VIX itself is a poor measure of what is actually going on in terms of “Volatility” in the marketplace and ETPs that invest in VIX futures tend to have a host of issues among themselves in terms of performance eroding contango for example, perhaps alternate ways of monitoring volatility changes and moreover adjusting equity and fixed income exposure around such changes when appropriate, and in an dynamic sense, like VSPY are rather timely at this juncture given the state of the markets.
In speaking with a representative from Direxion recently, we learned that “VSPY is a great tool for investors looking to participate in the upside performance of the S&P 500, while protecting their portfolios in choppy
market environments.