Daily ETF Watch: ‘Spot’ VIX Funds Near

Investors may soon be able to get “spot” exposure to the CBOE Volatility Index (VIX), when ETF newcomer AccuShares rolls out its first two funds on Tuesday, May 19.

We use the word "may" because the structure of the funds, the AccuShares Spot CBOE VIX Up Shares (VXUP) and the AccuShares Spot CBOE VIX Down Shares (VXDN), has never been attempted. The first of the funds listed above, VXUP, is designed to deliver the spot return of the VIX and the “Down Shares” version, VXDN, is designed to deliver the inverse of VIX returns.  

This focus on spot VIX returns is, as noted, novel, and could be a real game-changer if the structures of these funds deliver on their promises. Typically investors looking to gain exposure to the VIX must invest in an ETF that uses futures or derivatives designed around the VIX. That approach can, over time, deliver very different returns than the VIX itself, as can be seen in the chart below.

Chart courtesy of StockCharts.com

Crucially, none of the AccuShares products invests directly in futures to get its exposure to the VIX. Instead, they invest in cash and cash equivalents and use algorithms to distribute gains or losses to investors, with cash distributions occurring on at least a monthly basis.

Memories Of The Past

The structure calls to mind the MacroShares ETFs, the first of which launched in 2008. The “up” and “down” funds were tied to the S&P/Case-Shiller 10-City Composite Home Price Index, and basically invested in Treasurys, shifting assets between the two portfolios as the index moved up and down, a bit like a teeter-totter.

One of the problems with it was that one side of the teeter-totter (the up or down fund) would draw all the assets away from the opposing fund, leading to the closure of both funds. It’s not clear if the AccuShares could face a similar issue, but the prospectus does contain a provision for liquidation should one of the funds lack enough assets to remain viable.

It should also be noted that the MacroShares came with an expiration date when investors would receive a lump sum. The funds didn’t trade for very long, and the last ones ended up closing in 2009.

More AccuShares In The Pipeline

The AccuShares structure can be applied to any futures contract, and the firm has another six pairs of funds planned that will provide exposure to the world’s most widely followed commodity futures index, the S&P GSCI, and five of its subindexes.