VIX ETFs Higher on Week as Sequestration Cuts Loom

ETF Trends

Volatility-linked ETFs were the week’s biggest gainers with some investors looking for hedges as the Dow Jones Industrial Average brushes up against its all-time high.

For example, VelocityShares Daily 2x VIX Short Term ETN (TVIX) was on track for a 14% weekly advance in afternoon trading Friday amid reports leaders in Washington were unable to cut a sequester deal to avoid spending cuts.

In the major U.S. stock indices, the S&P 500 was poised for a weekly gain of 0.2%, the Dow added 0.6% and the Nasdaq Composite climbed 0.2%.

“The sequester panic, if this was 18 months ago, we could have seen multi-hundred point swings in the market,” Kevin Divney, chief investment officer at Beaconcrest Capital Management, told Bloomberg News. “What has happened is that the policy makers have lost credibility with the stock market.”

Stocks appeared to have already priced in the failure by legislators to reach an agreement, and equities were higher Friday afternoon following upbeat manufacturing data, Reuters reported.

“The positive manufacturing data, better than expected, sends a signal the economy itself, and manufacturing in particular, is showing signs of strength – trumping any concern that people seem to have with the sequester cuts,” said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management, in the article.

This week’s top three unleveraged ETFs were VelocityShares Long VIX Short Term ETN (VIIX), ProShares VIX Short-Term Futures ETF (VIXY) and iPath S&P 500 VIX Short-Term Futures ETN (VXX) with gains of at least 8%.

Not including volatility products, the bottom three unleveraged ETFs were Market Vectors India Small-Cap ETF (SCIF), Guggenheim Global Solar Energy (TAN) and iShares MSCI Italy (EWI) with setbacks of 5% or more.

In next week’s economic data, look for reports on ISM non-manufacturing, factory orders, the Fed’s Beige Book and international trade. Next week’s main event, however, will be the February employment report, which crosses on Friday.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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