Like a freefall roller coaster operator, investors have seen nothing, but the markets going up, going down, rinse, and repeat. However, there’s been a trio of ETFs that investors may want to look at should another heavy dose volatility rack investors.
Out of an ETF universe of over 2,000, these three were standouts:
- VelocityShares Daily 2x VIX Short-Term ETN (NasdaqGM: TVIX): seeks to replicate, net of expenses, the returns of twice (2x) the daily performance of the S&P 500 VIX Short-Term Futures index. The index was designed to provide investors with exposure to one or more maturities of futures contracts on the VIX, which reflects implied volatility of the S&P 500 Index at various points along the volatility forward curve. The ETNs are linked to a multiple (2x) of the daily return of the index and do not represent an investment in the VIX.
- iPath Series B S&P 500 VIX Short-Term Futures ETN (BATS: VXX): seeks return linked to the performance of the S&P 500® VIX Short-Term Futures Index TR. The ETN offers exposure to futures contracts of specified maturities on the VIX index and not direct exposure to the VIX index or its spot level. The index is designed to provide investors with exposure to one or more maturities of futures contracts on the CBOE Volatility Index®.
- IQ Merger Arbitrage ETF (NYSEArca: MNA): seeks investment results that correspond generally to the price and yield performance of its underlying index, the IQ Merger Arbitrage Index. The fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the investments included in its underlying index. The underlying index seeks to employ a systematic investment process designed to identify opportunities in companies whose equity securities trade in developed markets, including the U.S., and which are involved in announced mergers, acquisitions, and other buyout-related transactions.
Given the wonderful spike in the CBOE S&P 500 Volatility Index, it’s easy to see how low volatility ETFs were a must:
However, the majority of ETFs held up well during the past week and a half in terms of volatility cushioning. In essence, they all get the participation award, especially for their liquidity when volume trading was high, especially during Monday’s trading session that saw the major indexes roar back from the worst week since the financial crisis.
“There are 2,400 ETFs,” Chris Hempstead, director of institutional business development at IndexIQ, told CNBC’s “ETF Edge” on Monday. “They all held up remarkably well. … Everything really held up well in this market, and the verbiage that was being communicated to me by liquidity providers was ‘orderly,’ and that’s important.”
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