At the First Annual CBOE Risk Management Conference (RMC) Asia in Hong Kong, Tim Edwards, Ph. D., Senior Director of Index Investment Strategy, S&P Dow Jones Indices, delivered a presentation on the design and performance of long, short and dynamic VIX-based benchmark indexes, and covered their utility for longer-term investors and shorter-term traders.
While many investors are familiar with the price movements of the spot CBOE Volatility Index® (VIX®), we at CBOE receive many inquiries re: the issue of the performance of a portfolio or ETP (Exchange-Traded Product) that invests in VIX futures. (The spot VIX Index is not investable). While many investors are aware of the fact that some first-generation VIX-based ETPs have had substantial losses in recent years because of the drop in VIX Index since 2008, and the fact that VIX Index usually has been in contango in recent years.
MANY VIX-BASED BENCHMARK PERFORMANCE INDEXES
Tim noted that SPDJI offers more than one million indexes, and among those indexes are several indexes that use VIX futures. As shown in the chart below, three VIX-based benchmark indexes -– (1) S&P VEQTOR Switch Index, (2) S&P Dynamic VEQTOR Index, and (3) S&P 500 Dynamic VIX Futures Index – all had higher returns than the S&P 500 stock index since November 2006. All five VIX-based indexes appear to have some diversification potential.
The initial VIX-based ETPs (Exchange-Traded Products that track VIX-benchmark indexes) were introduced in early 2009, and the total assets in VIX-based ETPs has grown to more than $3 billion.