An ETN that has been attracting more and more attention here in 2012 as Volatility Based ETPs have become embraced by a wider swath of advisers and institutional managers, is iPath S&P 500 Dynamic VIX ETN (XVZ) .
Amongst ETPs that are classified in the “Alternatives” category, which include all Volatility based products, XVZ is number three in terms of assets under management with $280 million currently. Considering the fact that the ETN only launched in August of 2011, this is indeed impressive asset growth in less than one year.
XVZ is structured in such a fashion that it will dynamically allocate between the S&P 500 VIX Short Term Futures Index Excess Return and the S&P 500 VIX Mid Term Futures Index Excess Return.
“Long” VIX ETPs have been much maligned in the media for years now, mostly due to the fact that the VIX futures curve tends to be in contango most of the time which deteriorates overall returns gradually as these funds are forced to “roll” futures contracts each month during re-balance activity. This said, XVZ was developed in order to mitigate these implicit “costs” caused by states of contango in the futures market, in addition to reacting positively to rises in the general market in terms of overall volatility.
In essence, on the desk we are seeing more strategic uses of XVZ in certain portfolios as more of a “buy and hold” or at least a security with a 3-6 month holding period at least partly due to the impressive live performance.
XVZ has only lost 0.84% YTD versus the largest ETP in terms of assets under management in the “Alternatives” space, iPath S&P 500 VIX Short Term Futures ETN (VXX) , falling 58.74% during the same time frame. And since inception in August of last year, XVZ is down 0.34% versus VXX declining 63.74%.
iPath S&P 500 Dyanamic VIX ETN
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