Barclays to Launch New VIX ETNs

Barclays has just announced that it filed the necessary paperwork to launch a pair of ETNs that will track the increasingly well-known Chicago Board Options Exchange’s Volatility Index, or the VIX.

Characteristics of ETNs. For those of you who don’t know, the VIX measures volatility and is a good gauge in investor sentiment. These new ETNs will charge net fees to investors of 0.89% per year, trade on the NYSE Arca exchange and will continuously rollover contracts.

How They Work. The iPath S&P 500 VIX Short-Term Futures and the iPath S&P 500 VIX Mid-Term Futures will continuously roll over contracts. The short-term fund will trade one- and two-month VIX futures. CBOE has only been offering VIX futures since March 2004. The VIX has a strong negative correlation with stocks, as witnessed at the height of market volatility late last year.

Drawbacks of ETNs. The ETNs will enable the delivery of an investable portfolio accessible on a daily basis to retail markets; however, they come up with a price. One such risk is taxes. These notes will be considered as prepaid contracts and will not get tax preferences, states Murray Coleman of Index Universe. In layman’s terms, this means that investors will be subject to capital gains taxes if held outside of sheltered accounts. Additionally, because these are being issued as notes, they will represent unsecured debt for anyone purchasing the ETNs.

With the current lead time of filing new notes and funds, it seems like it will be a while before these notes hit the market, but when they do, investors will have another tool to add to their arsenal.

Comments

[User 265729]

I'm sure they will.

Problem with the old one???

Looks bad, so we need to revise it... Gotta make sure things "look good" as we march to poverty. Appearances...

2009 Jan 25 03:18 PM

[J Clinton Hill]

thx for the heads up... i've been waiting for this product with bated breath for years.... should be a useful tool for retirement and pension accounts.... it will be interesting to see how they finish making this "sausage" in terms of fees and other liabilities....

the contrarian in me almost wants to ask if this confirms that we are one stepp closer to ending this bear market when you see a product like this being rolled out...

oh well, that's open for debate and argument...

2009 Jan 25 04:56 PM

[Geoffrey Lordi]

I can't wait to see how these perform...How useful they will be remains to be seen. The ^VIX index currently sports a -.896 r^2 to the S&P500: excellent for those of us who build low-r^2 portfolios.

2009 Jan 25 10:31 PM

[NC Investor]

Is there a concern whether Barclay's bank will be able to financially back these ETN's? i.e. Isn't Barclays close to beign nationalized.

2009 Jan 26 04:48 PM