VelocityShares has launched two exchange-traded funds providing a long/short volatility strategy combined with a large cap equity allocation.
Each ETF seeks investment results that correspond generally to the performance, before fees and expenses, of its underlying index.
Then VelocityShares Volatility Hedged Large Cap ETF (SPXH) tracks the VelocityShares Volatility Hedged Large Cap Index, while the VelocityShares Tail Risk Hedged Large Cap ETF (TRSK) tracks the VelocityShares Tail Risk Hedged Large Cap Index.
"Volatility ETPs have proliferated in the last four years, but until now, investors have not had a sophisticated product which would enable them to implement a strategic volatility allocation in one package," says Nick Cherney, chief investment officer and co-founder of VelocityShares. "These VelocityShares ETFs are intended to provide a truly institutional quality solution to a vexing problem: how to use volatility to improve portfolio quality."
The new ETFs are intended to combine an 85 per cent exposure to a US large cap equity portfolio with a 15 per cent exposure to a volatility strategy, rebalanced every month. Both volatility strategies are designed to provide long/short exposure to VIX futures and potentially benefit from the interaction between the dynamics of the VIX futures curve and the convexity generated by using daily resetting instruments.
TRSK uses a volatility strategy which tries to hedge tail risk events in the S&P 500, at a potentially higher cost during normal market conditions, by targeting a slightly long volatility bias.
SPXH uses a volatility strategy which also tries to hedge large volatility events in the S&P 500, while retaining upside potential during normal market conditions, by targeting a neutral volatility bias.
Both volatility strategies use a purely systematic, signals-free approach, in an attempt to create effective long and short volatility positions with desirable cost/benefit characteristics.