The presentation of the S&P 500 Dynamic VEQTOR Index begins with the following:
The S&P 500® Dynamic VEQTOR Index dynamically allocates long-only exposure between the S&P 500, the S&P VIX Short-Term Futures Index, and cash in order to measure broad equity market exposure with an implied volatility hedge. The index mitigates risk between equity and volatility and helps hedge downside protection in volatile markets.
The allocation between components is calculated daily. The following chart shows that VEQTOR was able to catch a part of the S&P 500 gains in bull markets, and a part of the VIX surge in bear markets ("hedging mode").
VEQTOR has lagged behind SPY since 2010, but it has almost tripled the broad index return since 2008:
Return (CAGR %)
The fact sheet gives risk-adjusted data between February 2008 and February 2011 (3 years). They show that VEQTOR has divided the risk of SPY by 2.5 on this period:
Risk (Standard deviation)
The hedging power of VEQTOR in a bear market can be quantified by comparing its return with a short position in SPY:
Approximate return in bear markets
October 2008-March 2009
The ratio between SPY and VEQTOR is similar for both periods, and close to 1. However, two data points are not enough to calculate a precise ratio.
Barclays S&P 500 Dynamic VEQTOR ETN
Powershares S&P 500 Downside Hdg
Net Asset Value (approx.)
Average Volume (approx.)
PHDG is an ETF (Exchange Traded Fund) with identified and quantified holdings, whereas VQT is an ETN (Exchange Traded Note). PHDG holdings can be found on this page.
The following chart compares PHDG and VQT year-to-date (6/4/2013):
Their returns remained in a 1% channel. If we compare them with VEQTOR (year-to-date 8.59 %), the annualized tracking error is less than 1.5%. However, the data don't allow an evaluation in all market conditions.
According to available data, the S&P 500 Dynamic VEQTOR Index is approximately equivalent to a short position in SPY in bear markets, and yet has positive returns in bull markets. PHDG and VQT are instruments based on VEQTOR with an acceptable tracking error. I use them to hedge a part of my quantitative portfolio.