Newcomer VelocityShares Introduces Suite of Volatility ETNs

November 30, 2010 by  
Filed under Commentary, ETF IPOs (New ETFs), ETNs, Volatility Products

VelocityShares LLC, a new exchange-traded product sponsor, introduced six new exchange-traded notes (ETNs) today (November 30, 2010).  Issued by Credit Suisse, these unsecured notes offer long, inverse, and leveraged exposure to indexes based on Volatility Index (VIX) futures.

Investors should keep in mind that these products will not track the VIX Index, they will track various VIX futures indexes.  The S&P VIX Short-Term Futures Index Excess Return targets a constant weighted average maturity of one month, and the S&P VIX Mid-Term Futures Index Excess Return targets a constant weighted average maturity of five months.

The press release of 11/22/10 was a little premature, suggesting the new ETNs were launched that day.  The initial listing and first day of trading actually came eight days later.  The new VelocityShares website provides additional background and a link to the prospectus and pricing supplement (pdf).  The ETNs have investor fees (expense ratios) ranging from 0.89% to 1.65%.  Each product is summarized below:

  • VelocityShares Daily 2x VIX Short-Term ETN (TVIX) is linked to twice (2x) the daily performance of the S&P 500 VIX Short-Term Futures Index Excess Return less the investor fee of 1.65% annually.  TVIX fact sheet (pdf).
  • VelocityShares Daily 2x VIX Medium-Term ETN (TVIZ) is linked to twice (2x) the daily performance of the S&P 500 VIX Mid-Term Futures Index Excess Return less the investor fee of 1.65% annually.  TVIZ fact sheet (pdf).
  • VelocityShares Daily Inverse VIX Short-Term ETN (XIV) is linked to the inverse of the daily performance of the S&P 500 VIX Short-Term Futures Index Excess Return less the investor fee of 1.35% annually.  XIV fact sheet (pdf).
  • VelocityShares Daily Inverse VIX Medium-Term ETN (ZIV) is linked to the inverse of the daily performance of the S&P 500 VIX Mid-Term Futures Index Excess Return less the investor fee of 1.35% annually.  ZIV fact sheet (pdf).
  • VelocityShares VIX Short-Term ETN (VIIX) is linked to the daily (long) performance of the S&P 500 VIX Short-Term Futures Index Excess Return less the investor fee of 0.89% annually.  VIIX fact sheet (pdf).
  • VelocityShares VIX Medium-Term ETN (VIIZ) is linked to the daily (long) performance of the S&P 500 VIX Mid-Term Futures Index Excess Return less the investor fee of 0.89% annually.  VIIZ fact sheet (pdf).

Barclays, under the iPath brand, introduced volatility-based exchange-traded products nearly two years ago with the launch of the first two VIX futures ETNs.  Both iPath S&P 500 VIX Short-Term Futures ETN (VXX) and iPath S&P 500 VIX Mid-Term Futures ETN (VXZ) have proven very popular with traders, and they will provide VIIX and VIIZ with stiff competition at the same 0.89% investor fee.

The new VelocityShares Daily Inverse VIX Short-Term ETN (XIV) faces formidable competition from iPath Inverse S&P 500 VIX Short-Term Futures ETN (XXV), which tracks the same index with a lower 0.89% investor fee (versus 1.35% for XIV).

The remaining three new ETNs from VelocityShares currently have no direct competitors.  However, the 2x products (TVIX and TVIZ) carry an investor fee of 1.65%, and the inverse mid-term ETN (VIIZ) has a 1.35% fee.  If these products prove popular with traders, lower-priced competition will likely enter the arena.

For completeness, I will also mention one additional volatility-based ETN, the C-Tracks Citi Volatility Index Total Return ETN (CVOL).  However, Citigroup has failed to explain what CVOL actually is.

Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentioned.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

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