Horizons Exchange Traded Funds has announced plans to launch the Horizons BetaPro S&P 500 VIX Short-Term Futures Inverse ETF, which began trading today on the TSX. It’s Canada’s first Inverse volatility ETF.
The new fund is designed to provide daily investment results, before fees, expenses, distributions, brokerage commissions and other transaction costs, and endeavors to correspond to the single inverse of the daily performance of the S&P 500 VIX Short-Term Future Index.
In addition, any U.S. dollar gains or losses as a result of the fund’s investment will be hedged back to the Canadian dollar to the best of the manager’s ability.
Trading as “HVI” on the TSX, the fund is the first Canadian ETF that offers investors the opportunity to profit from a decline in a volatility index.
Investors can’t gain direct exposure to the Chicago Board of Exchange’s Volatility Index, which is commonly used as a measure of the U.S. equity market’s implied volatility.
“Many investors may only think about investing in volatility when they expect it to rise,” said Howard Atkinson, CEO of Horizons ETFs. “Historically, volatility tends to rise dramatically over short periods of time and then taper off.”
He adds, “Investors can potentially benefit from investing in declining volatility when the S&P 500 VIX Short-Term Futures Index has been trading above its historical range and starts to decline.”
The fund joins two other volatility index ETFs offered by Horizons; the Horizons BetaPro S&P 500 VIX Short-Term Future ETF and Horizons BetaPro S&P 500 VIX Short-Term Future Bull Plus ETF.
The firm advises that VIX investments should not be viewed as conventional investments, as the index tracks implied market volatility, rather than market returns. It has a low to negative correlation to equity market returns, is highly volatile, and should not be used as a stand-alone, long-term investment.
Historically, the VIX index has experienced significant one day increases when equity markets have had large negative returns which, if repeated, could cause the fund to suffer substantial losses.