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Volatility-linked ETP bites the dust

Another volatility-linked product is heading for the exits — without the same fireworks that felled similar funds in February.

The REX VolMAXX Long VIX Futures Strategy ETF (VMAX), which enabled investors to bet on a rise in implied equity volatility, will be liquidated later this month, according to Exchange Traded Concepts, its investment advisor.

The fund will begin converting its assets to cash on Monday, and its last day of trading will be July 24.

NYSE stock trader

VMAX was up 50% year to date, but had less than $3 million in assets at the close of trading Friday, according to data compiled by Bloomberg. That pales in comparison to the more than over $750 million in assets for the iPath S&P 500 VIX Short-Term Futures ETN (VXX).

A message left with ETF provider Rex Shares, the company behind VMAX, was not immediately returned.

The shuttering comes months after a series of moves that made a suite of volatility-linked ETPs less volatile. On Feb 23, Rex Shares announced that its products — VMAX and VMIN — would soon invest primarily in VIX contracts further out on the future curve, which tend to swing less than their front-month counterparts. Days later, ProShares moved to reduce the leverage on its Short VIX Short-Term Futures (SVXY) and Ultra VIX Short-Term Futures (UVXY) ETFs, a shift that caused headaches for options holders.

These funds employed a more conservative strategy in the wake of the record one-day spike in the CBOE Volatility Index on Feb. 5, which led to closure of several similar products. Thus, VMAX’s closure could signal that investors betting on volatility’s ebbs and flows might be once bitten, twice shy, or that the remaining retail players in the space don’t have the patience for neutered products.

These funds have the smallest beta scores, either positive or negative, indicating the least variability from market returns.
August 30

The VelocityShares Daily Inverse VIX Short-Term ETN (XIV), the biggest product allowing investors to bet on enduring market calm, lost nearly all of its value on Feb. 5 and Credit Suisse announced plans to liquidate the note the following day. Nomura, for its part, apologized to investors for the early redemption of its Next Notes S&P 500 VIX Short-Term Futures Inverse Daily Excess Return Index ETN due to the market chaos.

The immense popularity of these products served to exacerbate the downside for U.S. stocks in February, according to analysts, as short-volatility bets were unwound.

Bloomberg News