VIX ETPs Demystified – December 2011

Just like most humans (monozygotic twins excluded) are not created equals, most VIX futures based exchange-traded products (ETPs) are not equal (At the time of writing this post, there were 43 primary listed ETPs). While there are a number of distinctions and I will attempt to highlight the key areas, but first the few common themes are:

1) They all use swaps to some degree
2) They are all linked to VIX futures (and maybe other assets, but not VIX spot or the VIX Options)

This is not to say that these are the only commonalities, but these are among the most important ones. The key areas of differences for these ETPs are:

1) Structure – These can be structured as exchange-traded notes (ETNs) or exchange-traded funds (ETF), depending on the issuer. Depending on the structure, there may be certain provisions that would be imposed on the investor. e.g. ETNs tend to have an automatic acceleration provision that initiates redemptions if certain trigger thresholds are breached.

2) Exposure – The exposure can vary by maturity i.e. 30-day, 60-day, 5-month, etc.; overcome certain investment impediments such as to reduce roll cost like Term Structure or Dynamic VIX Futures; or for use as an asset allocation tool.

3) Issuer/Sponsor – A number of product issuers globally are offering products – Barclays Capital (through iPath or Barclays ETN+), VelocityShares, ProShares, UBS (Through E-TRACS platform), Source (in Europe), Kokusai Asset Management (in Japan), Citigroup and BetaPro (in Canada)

4) Fees – The fees for different products offered by different sponsors varies. An investor should look through the prospectus to identify “all-in” cost prior to deciding which product to use.

Click here to view the file which lists the 43 products and outlines their structure, AUM, and other high-level characteristics of these products.

The posts on this blog are opinions, not advice.
Please read our disclaimer for Indices.

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