More ETF Closures: ETRACS to Shutter VIX Lineup - ETF News And Commentary
08 September 2012 - 2:08AM
Zacks
Although investors have seen a few ETF launches in the past
couple of days, mass closures have also been hitting the market as
well. First FocusShares and Russell announced that they would be
shuttering the vast majority of their products (only Russell kept
alive a single fund), while now the trend appears to be hitting the
ETN world as well.
ETRACS, the ETN brand from UBS, appears to be on the verge of
shutting down its relatively unpopular VIX ETN lineup, giving the
axe to a dozen products in total. All twelve of these notes were
relatively new on the market and gave investors exposure to either
short or long exposure in the volatility market on a monthly basis
making them relatively unique in the ETP world (see more in the
Zacks ETF Center).
The products provided investors with targeted exposure to a
certain month along the volatility curve, theoretically helping
investors to focus in on a particular level of the VIX.
Additionally, the inclusion of both short and long versions allowed
investors to go long in a particular month and then short a
different one, playing possible trends in the market in an easy
way.
Yet despite this, none of the products really caught on among
investors as the most popular only had about $16 million in AUM.
This fund though saw volume below 2,000 shares a day suggesting
incredible bid ask spreads, a situation that becomes even worse
when looking at the even less popular ETNs in this family (see Are
The Trendpilot ETNs Better Than Broad Market ETFs?).
For example, the one month long version, VXAA, saw average
volume of about 500 shares in a normal session and with an average
trade size of 250 shares (according to XTF.com) which means that
roughly two trades a day were taking place in the product.
Obviously this kind of disinterest couldn’t go on forever and
something was going to give sooner or later in this unpopular
segment.
Below, we have listed the notes which will be closing to new
investors, effective today, September 7th 2012. UBS AG
will then pay out to investors who were still in the security a
cash payment at the end of business on September
12th.
Long 1-Month S&P 500 VIX Futures ETN (VXAA)
|
Short 1-Month S&P 500 VIX Futures ETN (AAVX)
|
Long 2-Month S&P 500 VIX Futures ETN (VXBB)
|
Short 2-Month S&P 500 VIX Futures ETN (BBVX)
|
Long 3-Month S&P 500 VIX Futures ETN (VXCC)
|
Short 3-Month S&P 500 VIX Futures ETN (CCVX)
|
Long 4-Month S&P 500 VIX Futures ETN (VXDD)
|
Short 4-Month S&P 500 VIX Futures ETN (DDVX)
|
Long 5-Month S&P 500 VIX Futures ETN (VXEE)
|
Short 5-Month S&P 500 VIX Futures ETN (EEVX)
|
Long 6-Month S&P 500 VIX Futures ETN (VXFF)
|
Short 6-Month S&P 500 VIX Futures ETN (FFVX)
|
Despite this sudden rash of closures, investors should note that
the company isn’t giving up on the volatility space entirely.
Instead, the company will keep open its most popular volatility ETN
the Long-Short S&P 500 VIX Futures ETN
(XVIX).
This product isn’t exactly the most popular with under $20
million in AUM, but it does have a little more respectable 10,000
shares in daily average volume. The product also has a much more
unique focus as it takes a 100% long position in mid-term futures
and then uses a 50% short position in short-term futures (see ETFs
vs. ETNs: What’s The Difference?).
This technique looks to capitalize on the steepness of the short
end of the VIX curve, potentially allowing investors to profit in
the process while also providing uncorrelated returns as well. The
strategy has had mixed results in recent months as it has gained
about 4.6% in the previous half year period, although it should be
noted that XVIX has outperformed the S&P 500 over the trailing
one month time frame.
Other VIX ETF options
Despite the loss of the VIX ETNs, there are plenty of choices
still out there for investors looking to tap into the volatility
market, albeit using less granular products. Easily the most
popular is the iPath S&P 500 VIX Short Term Futures ETN
(VXX) although both UVXY and
TVIX offer leveraged exposure and trading volumes
above one million shares a day as well (see ETF Investors: Beware
The Coming ETN Backlash).
Given that even with these losses there are still more than 20
VIX-focused ETNs on the market, the loss of these UBS products
shouldn’t be too hard for investors to swallow. Clearly, the VIX
market is reaching its limits in terms of proliferation and this
once extremely crowded market is finally starting to see some much
needed contraction, a situation that shouldn’t really be of any
alarm to those who are worrying about the recent run of ETF
closures that have been hitting the market.
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VEL-2X VIX ST (TVIX): ETF Research Reports
PRO-ULT VIX STF (UVXY): ETF Research Reports
IPATH-SP5 VX ST (VXX): ETF Research Reports
E-TRC D L/S VIX (XVIX): ETF Research Reports
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