Source and Nomura have launched the Nomura Voltage Short-Term Source ETF, which aims to provide responsive and tactical exposure to volatility by tracking the Nomura Voltage Strategy Short-Term 30-day USD TR Index, an index which seeks to capture spikes in volatility while reducing associated slide costs.
This is the second Source ETF in the Nomura Voltage series. The Nomura Voltage Mid-Term Source ETF, which tracks the Nomura Voltage Strategy Mid-Term 30-day USD TR Index, was launched in April 2011 and now has assets of over USD542 million. Both ETFs are available to sophisticated investors, providing them with different volatility investment options to better manage their risk/return profile.
Futures on the CBOE Volatility Index (the VIX) are a convenient way to obtain exposure to volatility. However, because VIX futures often suffer from contango1, maintaining that exposure over the long term can be costly. The Nomura Voltage Strategy Short-Term 30-day USD TR Index offers an efficient alternative for investors seeking a long position in volatility. The index reflects exposure to volatility via the S&P 500 VIX Short-Term Futures Index TR, but varies the level of exposure from 0% to 100% based on the Nomura Voltage allocation model. In this way, the index aims to capture spikes in volatility, whilst mitigating the cost of rolling VIX futures.
Mohamed Yangui, Managing Director and Head of Equities Structuring at Nomura, says: “Although our existing medium-term Voltage ETF is very popular as a buy-and-hold hedge, we see some clients looking for more responsive exposure, something more closely aligned to spot VIX. Short-term VIX futures are very reactive to spikes in volatility, but, over time, investors suffer as the rolling costs can be painfully high. This strategy aims to significantly reduce the impact of those costs.”
Source CEO Ted Hood says: “With the success of the existing Nomura Voltage Source ETF, we are delighted to add another Voltage product to our range. Volatility exposure is often a compromise between cost and reactivity, so it is important that investors can choose the product that best suits their needs, whether as a hedging tool or to implement a stand-alone investment. This new ETF will complement Source’s existing volatility product range, which currently represents over 70% of assets in European-listed volatility ETPs.”