These ETFs Are Adding Buffers Against VolatilityBy
Two exchange-traded funds that survived a rival-destroying bout of volatility are adding a buffer to their strategies to protect investors -- and themselves.
The funds, which trade under the tickers VMIN and VMAX, are changing their methodologies to make them less sensitive to swings in daily volatility, according to a press release from REX Shares LLC, the company behind the products. Going forward, both will focus on futures that expire in two-to-six months, rather than contracts on the Cboe Volatility Index that expire in less than one month, the statement said.
Investors in an exchange-traded product run by Credit Suisse Group AG were wiped out when the VIX jumped the most in any day on record Feb. 5. XIV, which aimed to track short-term futures, slumped more than 90 percent on Feb. 6 and has since been liquidated by the Swiss bank. VMIN fell 69 percent that day. By moving out along the curve, the fund provider hopes to better insulate itself and investors against any similar event.
That’s because big moves in the VIX typically show up most vividly in the price of a contract that’s about to expire, rather than in one that still has months to run. Investors in longer-maturity contracts are therefore less exposed to day-to-day fluctuations in the VIX, like those that blew up XIV.
VMIN, which currently has about $10 million under management, could benefit from the maneuver. ZIV, a $130 million Credit Suisse ETN that has a similar strategy, slumped just 8 percent on Feb. 6, the same day its issuer said XIV would close. There’s a cost to that protection, though: ZIV returned 90 percent in 2017, versus XIV’s 188 percent.
For REX, the shift will begin March 7. The REX VolMAXX Short Weekly Futures Strategy ETF, also known as VMIN, will change its name to REX VolMAXX Short VIX Futures Strategy ETF on April 25, with the REX VolMAXX Long VIX Weekly Futures Strategy ETF (VMAX) becoming the REX VolMAXX Long VIX Futures Strategy ETF, the statement said.