We have long awaited for a VIX ETN and much to our surprise Barclays has just rolled out two new VIX ETN’s.
First in the interest of space, should you need a quick review of what an ETN is please follow this link http://en.wikipedia.org/wiki/Exchange_Traded_Notes
We have long been advocates of ETF’s and ETN’s for CERTAIN types of investments due to their ease of use, and knowledge of holdings. Just as in any investment their are certain ETF’s/ETN’s that are not good in our opinion (especially leveraged or turbo charged ETF’s as we nick named them.)
The VIX is a measure of risk and volatility in the options and futures markets. According to Wilkipedia here is a more eloquent description:
“VIX is the ticker symbol for the Chicago Board Options Exchange Volatility Index, a popular measure of the implied volatility of S&P 500 index options. A high value corresponds to a more volatile market and therefore more costly options, which can be used to defray risk from volatility. If investors see high risks of a change in prices, they require a greater premium to insure against such a change by selling options. Often referred to as the fear index, it represents one measure of the market’s expectation of volatility over the next 30 day period.”
Most importantly the VIX rises in a time of fear and works well in a portfolio for an investment that rises when the markets fall.
We do not add new holdings to portfolio’s until time passes (as of today these new ETN’s have been trading only 4 days.) We are cautious to see if new investment products closely follow their appropriate benchmarks.
If in fact these new products appropriately follow their benchmarks, trade with volume and liquidity, and do not get overwhelmed with asset growth (we suspect we are not alone in our enthusiasm for this product) we will be happy for a possible new inverse-correlated protection product during bad/down market movement times! JK