Better Ways to VIX ETFs

However, AccuShares, along with Robert Whaley, the father of the VIX, have come up with a different approach with the new Spot VIX products. Instead of holding futures contracts, VXUP and VXDN will hold cash and cash equivalents, such as bills, bonds and notes issued by the U.S. Treasury, to mirror the change in the spot price of the VIX. Share classes increase or decrease in response to daily changes in the spot price. The new proprietary indexing methodology will also cause the ETFs to recalibrate everything on the 15th of every month.

Since the spot VIX ETFs will hold Treasury bills and other fixed-income cash equivalents, investors may also enjoy a small yield. While the monthly distributions may trigger some tax issues, investors would not have to fill out K-1s associated with futures investments but only report taxes on a regular 1099 form.

The two ETFs charge 0.95% per year. Additionally, the long Spot VIX, or VXUP, comes with an additionally 0.15% daily expense to help pay for the short Spot VIX, or VXDN – due to the nature of the VIX, the investment is pretty much guaranteed to go up some time in the future but a short position is also likely to lose money, so the daily fees on VXUP is used to compensate those taking the risk of going short.

The two new spot VIX ETFs may provide a better way to play the Volatility Index, but investors should still consider these investments as tactical trades. Investors should not use these ETFs in a set-and-forget type portfolio since the investments typically require active engagement.

“Investors who do not intend to actively manage and monitor their Fund investments at least as frequently as each distribution date should not buy shares of the Funds,” according to a recent SEC filing.

For more information on new fund products, visit our new ETFs category.