XIV is getting redeemed, but traders are flocking to its close competitor, SVXY.
The exchange-traded product, which like XIV gains when equity-volatility futures fall, received a record $300 million in inflows even as its value sank to an almost six-year low on Thursday. Shares outstanding on the ETF jumped to unprecedented levels, while its indicative value sank.
“Trading VIX is a hell of a drug,” said Eric Balchunas, an ETF analyst at Bloomberg. “A lot of the flows around VIX ETPs will be on bad days as investors like to bet on the reverse since the VIX spikes tend to be a one-day thing. They are playing a game, not investing.”
The bet was rewarding in recent years as stock volatility kept on plunging. With a 182 percent surge, SVXY was one of the best-performing funds of 2017. The good times came to a halt, with the VIX’s record jump this week forcing Credit Suisse to redeem SVXY’s close cousin, known by its ticker XIV.
Read more: Short-volatility trades refuse to die
SVXY, whose full name is ProShares Short VIX Short-Term Futures ETF, has become the second-most traded security linked to volatility, after the iPath S&P 500 VIX Short-Term Futures ETN, known by its ticker VXX, according to volume data over the past month. Both are rated a 6 in the ETF Stoplight, a scoring system by Bloomberg Intelligence, meaning that they pose material risks for investors given their complexity and potential for volatility.
To contact the reporter on this story: Cecile Vannucci in London at cvannucci1@bloomberg.net.
To contact the editors responsible for this story: Chris Nagi at chrisnagi@bloomberg.net, Sid Verma, Joanna Ossinger
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