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A New King Among Volatility ETNs


There is a new sheriff in town among volatility exchange traded notes: The VelocityShares Daily Inverse VIX Short-Term ETN (XIV).

Investors’ ongoing desire to profitably harness volatility pushed XIV to the top spot among volatility ETNs Friday morning, marking the first time since 2009 the iPath S&P 500 VIX Short-Term Futures ETN (VXX) is not the largest volatility-based ETN.

“VXX has been the largest volatility ETP in the world since its introduction in 2009. XIV surpassed it today in terms of total assets due to a combination of factors: Strong performance relative to VXX, significant growth in shares outstanding relative to VXX, and increased adoption of short volatility strategies in the market,” said VelocityShares Chief Investment Officer Nick Cherney in an email exchange with ETF Trends.

Based on roughly 29.5 million shares outstanding and a share price just under $30 at this writing, XIV has $778.1 million in assets under management compared $710.6 million for VXX, according to VelocityShares data.

Increased market volatility boosts the allure of products such as XIV, a notion confirmed by a 60% increase in shares outstanding for the ETN last month.

XIV, which more than doubled in 2012 and again in 2013 as volatility slid, is a play on VIX futures that are at the front end of the futures curve, meaning the ETN is more prone to be whipsawed as volatility increases.  XIV is also currently in backwardation, the scenario where as expiration date nears, futures contracts rise to higher prices than where they resided when expiration was further out. [Rising Volatility Makes These ETNs Attractive]

In another sign of soaring interest in volatility strategies, the VelocityShares Daily Inverse VIX Medium Term ETN (ZIV) , a more docile answer to XIV, has seen its shares outstanding count nearly double in the past six months.

Over the past three years, ZIV has outperformed XIV by a wide margin while being significantly less volatile.

Chart Courtesy: ETF Replay