- VXX attracts $260.1 million in net flows as ETPs start to gain traction
- A rise in trader interest for these types of assets have typically preceded a swing in equity volatility
- The volatility index is now trading at around the 18 level, hovering around its historical average
Exchange traded products that help investors hedge against market swings are starting gain traction as the equities market pulls back and the CBOE Volatility Index, or VIX, pushes higher.
Over the past week, the iPath S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) attracted $260.1 million in net inflows, according to ETF.com.
A rise in trader interest for these types of assets have typically preceded a swing in equity volatility. When shares outstanding rise quickly, it has coincided with declining volatility, and a VIX that was about to rise in ahead. Looking at the recent interest in the VIX exchange traded note, this could be a negative for stocks, or at least increased investment demand to hedge against an over-complacent market.
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.
Over the past few weeks, the VIX declined 40% after the S&P 500’s three consecutive weeks of gains. The VIX, though, is beginning to rise as the equities market turns, with the S&P 500 down 0.5% Tuesday.
The volatility index is now trading at around the 18 level, hovering around its historical average.
On Tuesday, VXX rose 1.2% and ProShares VIX Short-Term Futures ETF (NYSEArca: VIXY) was up 1.2%. Additionally, for the more aggressive traders, the leveraged ProShares Ultra VIX Short-Term Futures (NYSEArca: UVXY) and VelocityShares Daily 2x VIX Short Term ETN (NYSEArca: TVIX), which try to reflect two times or 200% the daily performance of the S&P VIX Short-Term Futures Index, both gained 2.4%.
The volatility hedge was strengthening Tuesday after data revealed Japan’s economy and Chinese exports are falling, which added to concerns that the robust international monetary policies have not been enough to support a flagging global economy, reports Oliver Renick for Bloomberg.
“After three weeks of gains, we’re getting a bit of profit-taking triggered by the not-so-nice economic figures out of Asia,” Heinz-Gerd Sonnenschein, a strategist at Deutsche Postbank AG, told Bloomberg.
iPath S&P 500 VIX Short Term Futures ETN