Source, a specialist provider of exchange traded products and Nomura, the global investment bank, have teamed up to launch the Nomura Voltage Mid-Term Source ETF, which tracks the Nomura Voltage Strategy Mid-Term 30-day USD TR index (Voltage).
This is the first volatility-linked ETF to be offered in Europe that takes a tactical approach to volatility allowing investors to capture volatility spikes whilst decreasing the costs associated with a constant long volatility position. The new product complements the S&P 500 VIX Futures Source ETF, which launched last year as the first European ETF offering exposure to volatility.
Volatility is often seen as an attractive asset from a hedging perspective for equity investors due to its behaviour in distressed markets, when it often spikes dramatically. Voltage aims to capture spikes in volatility, while mitigating the cost of holding a systematically long volatility position. It provides volatility-adjusted exposure to the S&P 500 VIX Mid-Term Futures Index, a highly liquid and transparent volatility benchmark, allocating between this index and 3 month US Treasury Bills. The allocation to the Index can be between 0% and 100% and depends on the volatility of that Index – the higher the relative volatility, the higher the allocation. This allows for a reactive tactical model, which rebalances on a daily basis unlike vanilla options or most OTC volatility instruments.
Ted Hood, CEO of Source, says: “We are very excited to launch this innovative product in partnership with Nomura. Volatility is a new asset class for many investors and the combination of the cost of rolling futures and the VIX index’s tendency revert to the mean, have posed challenges for long term investors. The Voltage strategy provides an innovative approach, which will help address these concerns.”
Mohamed Yangui, Managing Director and Head of Equity Structuring at Nomura, says: “The tactical allocation of Voltage means that it is an investment that can be considered on a longer term basis than the typical systematically long volatility funds available on the market today. It aims to outperform its volatility benchmark by applying a tactical approach to determine when to decrease or increase the volatility allocation.”