Update: Source Nomura Voltage Mid-Term UCITS ETF

Dieser ETF bildet die Volatilität des S&P 500 Index ab und schützt so Aktienportfolios in turbulenten Zeiten. Aufgrund seiner Komplexität eignet sich dieser ETF allerdings nur für sehr erfahrene Investoren.

Kenneth Lamont 31.10.2014
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Rolle im Portfolio 

The Source Nomura Voltage Mid-Term UCITS ETF provides investors with nuanced exposure to the expected future volatility of the S&P 500 index as measured by the VIX index.

This fund is most suitable for sophisticated investors who fully understand the unorthodox nature of the underlying exposure and wish to partially hedge their portfolios against future declines in the S&P 500 index. Stock market volatility tends to spike in the face of declining share prices. Expected volatility, thus, serves as a proxy for market uncertainty, affording the VIX Index the sobriquet of "The Fear Index". When investors are fearful and uncertain, they will demand higher expected returns and thus pay less for assets in the present.

In addition to being effective speculative tools allowing bearish investors to bet on short-term declines in the US stock market,vehicles that follow the VIX tend to make theoretically good diversifiers for equity-based portfolios due to the negative relationship between volatility and share prices. Unfortunately, volatility is strongly mean-reverting, and as such will theoretically produce zero long-term return. If we include the significant re-balancing, management and indexing costs associated with this product, its long-term expected returns are likely to be negative. Therefore this product is best deployed as a portfolio hedge over relatively short periods of time.

With the underlying index reflecting the return on VIX futures contracts, it is important to understand the risks associated with the futures market, and not least the phenomenon of contango. Contango occurs when a futures price is higher than its current spot price. In this scenario, even if the spot price of a commodity is rising, investors could sustain capital losses.

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Fundamentale Analyse

Equity market volatility tends to exhibit a high degree of mean reversion, much more so than equity prices themselves. After peaking at a record high of almost 70 in October 2008, the VIX spot price has trended down sub-20 levels, well below the historical average.

The VIX is calculated from the weighted average of the implied volatility of the basket of 30-day S&P 500 options and gives a market consensus view of short-term volatility. Implied volatility, as opposed to realised volatility which is derived from actual historical returns, is the value of volatility priced into the current market price. This forward looking measure of volatility is calculated using options pricing models such as Black and Scholes.

Though market volatility tends to exhibit an acute mean-reverting quality, its behaviour in the wake of the financial crisis has been particularly extreme. Equity markets have not seen such high volatility for such a prolonged period since the 1970s. From 1990 until 2008, VIX reached its height of 45 during the peak of 1998's emerging-markets crisis and rarely strayed above 30.  In general, academics and market practitioners typically expect average market volatility to be in the mid-20s as proxied by the VIX.

Over recent years, the role of the VIX as a key market barometer has begun to be questioned. For those investing in VIX Futures, the potential decoupling of the relationship between the VIX and market uncertainty should be a concern. With the VIX trading down around levels last seen at the height of credit bubble, it would follow that markets have moved towards a consensus and systemic risks have receded, which for many is not an accurate reflection of current market uncertainty. Should this relationship no longer hold, then investors may wish to look elsewhere when seeking a hedge for their equity holdings.

Given that VIX futures have typically been used by institutions to hedge against future volatility, the VIX futures curve generally remains in contango. As a result, a long position in VIX futures will nearly always possess some element of negative roll yield and only be overcome when volatility spikes. The Nomura Voltage Strategy Mid-Term 30-day Index seeks to partially mitigate this issue by rebalancing its allocation to the VIX depending on the latter’s recent performance. As volatility begins to rise, the index increases its exposure to the VIX futures index hoping to capture any spike as it occurs. Conversely, the index will wind down the VIX futures position in favour of cash when market volatility declines. While this strategy has capped the upside of a VIX futures exposure, it also makes the Source ETF a bit more palatable to buy and hold long-term given that the pernicious effects of contango are partially alleviated. 

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The Nomura Voltage Strategy Mid-Term 30-day USD TR Index is designed to capture spikes in volatility, while mitigating the cost of holding a long-volatility position through VIX futures. In order to achieve this objective, the index provides volatility adjusted exposure to the S&P 500 VIX Mid-Term Futures Index, allocating between this index and a 3 month US Treasury Bill rate. The allocation to the S&P 500 VIX Mid-Term Futures Index TR can range from 0% to 100% depending on the volatility of that index. Rebalancing happens daily and is triggered when the volatility of the S&P 500 VIX Mid-Term Futures index changes relative to the previous 30 days. If volatility of the VIX rises above the trailing 30-day average, then the ETF rebalances to obtain greater VIX exposure. In general, this means that the higher the volatility of the VIX, the higher the allocation to the VIX. The S&P 500 VIX Mid-Term Futures Index, itself, models the return of a continuously rolling long position in volatility futures for a constant maturity of five months by holding fourth, fifth, sixth, and seventh-month VIX futures contracts. The performance of this index will not match that of the spot VIX Index, which is a measure of volatility calculated from the prices of a weighted blend of call and put options on the S&P 500 Index. This fund tracks a volatility futures index because the spot VIX Index is not investable.

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The Source Nomura Voltage Mid-Term ETF uses synthetic replication to track the performance of the Nomura Voltage Strategy Mid-Term 30-day USD TR index. Source uses an unfunded swap structure to deliver the index return. Unlike some of Source's other funds which diversify counterparty exposure amongst multiple parties, Source engages Nomura International plc as the sole swap counterparty. Source resets individual swaps to zero when exposure to the swap counterparty reaches 4.5% of the fund’s net asset value, which is below the UCITS prescribed maximum level of 10%. The swaps are also reset whenever there is a creation or redemption in the fund. The counterparty delivers a basket composed of European and Asian equities to be held at Northern Trust Fiduciary Securities. In exchange for delivering the index's performance, the swap provider receives the performance of this basket. Currently, Source does not engage in securities lending in its ETFs, but may in the future.

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Source levies an ongoing charge of 0.30% on the fund at all times. Additionally, there is an embedded expense of 0.80% on the portion of the ETF allocated to the S&P 500 VIX Mid-Term Futures index. No fee is charged to portion of the ETF allocated to 3 month US Treasury Bills. Finally, the index levies a transaction cost equal to 0.075% for each rebalancing trade. Rebalancing can be done as frequently as daily. It should be remembered that there are additional, investor-specific costs associated with trading the ETF, such as bid/offer spreads and brokerage commissions, which should be factored into an investment decision. Despite this fund using synthetic replication, there are no additional swap costs associated with this fund.

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The Lyxor ETF S&P 500 VIX Futures Enhanced Roll also provides exposure to the VIX futures market but remains fully invested. Similar to Source, Lyxor recognises the pervasive effects of contango and has sought to remedy this problem by tracking an index that holds medium-term futures in calm periods and shorter-term futures in stress periods. The index alternates between futures contracts based on signals generated from the VIX index in relation to its moving average.

Investors seeking exposure to European stock market volatility may consider the ETFS BofAML IVSTOXX GO UCITS ETF. This fund synthetically tracks the EURO STOXX50 Investable Volatility Index and charges a TER of 0.80%.

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Über den Autor

Kenneth Lamont  ist Fondsanalyst bei Morningstar.