Barclays launched a new inverse volatility exchange-traded note yesterday (7/19/10). Offering no explanation in the press release, Barclays decided to abandon the popular and successful iPath brand of its two existing “long” volatility products. Instead, Barclays is using the ETN+ brand that is currently associated with several struggling products.
The new ETN is called Barclays ETN+ Inverse S&P 500 VIX Short-Term Futures ETN (XXV). Adding to the confusion, the XXV overview page on the BARX (the leading candidate for new brand name) website has a prominent ad for iPath, although it’s designed to look like part of the page.
XXV notes are set to mature in 2020, will pay no dividends, and are linked to the inverse performance of the S&P 500 VIX Short-Term Futures Index Excess Return. They are essentially the inverse version of iPath S&P 500 VIX Short-Term Futures ETN (VXX) (VXX overview).
The XXV fact sheet (pdf) reminds us that these ETNs are unsecured debt securities and do not guarantee any return of principal at maturity or upon redemption. Barclays currently has an AA- rating from S&P and Aa3 from Moody’s for “long-term, unsecured obligations.” However, these securities are classified by Barclays as “global medium-term” notes.
The XXV pricing supplement (pdf) is 260 pages long (good luck with that). A couple of points I was able to extract from the two-page summary include a Fee Rate of 0.89% and an early termination trigger if the intraday indicative value is less than or equal to $10 (a 50% decline from the initial $20 launch value).
Despite these obstacles, Barclays likely has a successful product in XXV. This ETN will be useful for implementing various volatility strategies by itself or in conjunction with the two iPath ETNs that are long volatility (VXX & VXZ). Maybe one day all three will unite under the same brand name.
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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