Trading of 1st ETF tracking futures market volatility to start Friday

The first Exchange Traded Fund (ETF) tracking futures market volatility is scheduled to be listed on the local main board on Friday, according to the Taiwan Stock Exchange (TWSE).

The ETF — the Fubon S&P 500 VIX Short-Term Futures ETF — issued by Fubon Asset Management Co. (富邦投信), will use the S&P 500 VIX Short-Term Futures Index Excess Return as its underlying index.

The S&P 500 VIX Short-Term Futures Index ER is compiled and maintained by S&P Dow Jones Indices. The TWSE said that the new ETF is expected to provide investors with a new option at a time of increased volatility in global financial markets in a bid to hedge risks.

The new ETF will closely track the performance of the S&P 500 VIX Short-Term Futures Index ER. The VIX index refers to the CBOE Volatility Index, widely considered the best gauge of uncertainty in the market.

Liao Chung-wen (廖崇文), a director at Fubon Asset Management’s investment division, said that global financial markets have been moved by a series of global events, such as the referendum in the United Kingdom on whether to exit the European Union in June and the presidential election in the United States in November.

These big events have created volatility in global financial markets, Liao said and so investors require a tool such as the new ETF to assuage concerns over the impact from such critical events.

According to Liao, Brexit caused the S&P 500 index and international crude oil prices to plunge by 5.16 percent and 7.06 percent, respectively, from June 6-27.

On the other hand, the VIX futures index, gold prices and U.S. treasury yields soared 41.35 percent, 6.35 percent and 2.33 percent, respectively, during the same period, Liao said. The data shows that the impact of Brexit has been severe.

Fubon Asset Management cited data compiled by Bloomberg that shows in 2013 the S&P 500 VIX Short-Term Futures Index ER moved more than 3 percent in 12 percent of trading sessions, increasing to 15 percent and 22 percent in 2014 and 2015, respectively, data showed.

Fubon Asset Management said the increase in market volatility indicates that investors need an investment tool to help them offset risks, adding that in addition to facilitating risk hedging, the new ETF is also expected to generate profits in the near term when the S&P 500 VIX Short-Term Futures Index ER moves higher.

The new ETF will be the 27th ETF to be listed on the local main board, bringing the total number on the TWSE to 62, the exchange said.

Source: Focus Taiwan News Channel

Leave a Reply

Your email address will not be published. Required fields are marked *

For security, use of Google's reCAPTCHA service is required which is subject to the Google Privacy Policy and Terms of Use.

I agree to these terms.