Exchange traded products that track the CBOE Volatility Index, or VIX, have experienced large outflows, suggesting that investors are anticipating smaller swings and calmer markets ahead.
Traders pulled $850 million from two of the most popular ETPs, which include both exchange traded funds and exchange traded notes, in January, even as the VIX is set for its largest monthly surge since August, reports Camila Russo for Bloomberg.
So far this month, the iPath S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) experienced $381.3 million in net outflows, ProShares VIX Short-Term Futures ETF (NYSEArca: VIXY) saw $30.0 million in outflows and the leveraged ProShares Ultra VIX Short-Term Futures (NYSEArca: UVXY) had $400 million in redemptions, according to ETF.com.
VXX and VIXY jumped a little over 30% year-to-date while UVXY surged 62%, with the VIX now hovering around the 22.5 level – the VIX has historically kept within the 15 to 20 range.
The VIX is a widely observed indicator for investor sentiment in the stock market and measures the expected or implied volatility of large-cap stock options traded on the S&P 500 index. Exchange traded products that track VIX futures allow investors to profit during rising volatility or hedge against short-term turns.
However, some observers now argue that the selling has been overdone and central banks may be forced to step in to support the markets.
“Central banks, historically acting as shock absorbers, eventually came to the rescue and adopted a dovish tone, thereby implicitly indicating that ‘We are here to take care of the situation, so don’t worry,”’ Monish Shah, the head of ETF business at Mizuho Securities, told Bloomberg. “This will help stabilize the market and reduce volatility in the short term.”
After the heavy selling, short interest in VXX and UVXY has increased, according to Markit Data. About 89% of shares outstanding for VXX and 29% of UVXY are bearish positions, compared to 2.6% earlier this month.
Meanwhile, the VelocityShares Daily Inverse VIX Short-Term ETN (NYSEArca: XIV), which takes the -100% daily performance of short-term VIX contracts, attracted $440.3 million in net inflows so far this month. Inverse VIX ETPs allow investors to capitalize on a falling VIX or play on a calmer market conditions.
Max Chen contributed to this article.