May 2012 was a restless month in the US equity market. The S&P 500 Index declined 6% and VIX rose 40% from 17.15 (4/30/2012) to 24.06 (5/31/2012).
The S&P 500 VIX Short Term Futures Index and the S&P 500 VIX Mid Term Futures Index rose 28.71% and 13.13%, respectively. The S&P 500 Dynamic VIX Futures Index, which offers positive volatility exposure at reduced holding cost, responded positively, but at a muted 2.34%. The S&P 500 VIX Futures Term Structure Index lost 1.50%. Compared with the YTD returns, last month’s performance statistics proves that: 1) the two basic VIX futures indices are more sensitive to market movements; 2) the S&P 500 Dynamic VIX Futures Index provides a less expensive hedge to the equity market.
The S&P 500 Dynamic VEQTOR Index, which simulates the return of an equity portfolio with a built-in volatility hedge, saw a 2.20% decline in May. Its volatility is low at 4.79%, compared to the 12.52% volatility in the 500.
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