INSUBCONTINENT EXCLUSIVE:
New York: Stocks are calmer these days, but there’s one corner of the market where investor nerves are on full display.
So far this month,
more than $633 million has poured into US-listed exchange-traded products that benefit from a rise in volatility, putting May on track to be
the busiest streak for such inflows since August 2016.
The largest share of that cash — around $275 million — has gone to the iPath SP
500 VIX Short-Term Futures product, a note tracking Cboe Volatility Index futures
Meanwhile, the demise of the shortvolatility trade is continuing apace in the passive space, with a negligible $2.1 million added to the
strategy in May so far — even as the bet is capturing speculators again.
The last time investors like mom and pop were punting on price
swings like this August 2016, when the VIX index jumped the following month
Then, just as today, investors fretted over US interest-rate risks and Deutsche Bank AG’s earnings woes
Back then, retail folk voted with their feet by piling into VIX ETFs while institutional investors were relatively unruffled as they
surrendered hedges.
A similar dynamic of sorts seems to be in play today
For money managers outside the ETF ecosystem, seeking protection against choppy trading appears less compelling while the VIX index trends
down toward January levels.
Case in point: hedge funds and other leveraged accounts have flipped back to a net short position on VIX
futures, meaning they’re wagering on more-muted price swings relative to current levels
That’s after the fastmoney cohort moved to a long VIX position in March for the first time in two years.
Of course, VIX ETPs have appeal
Some institutional investors may be limited in their ability to hold derivatives, and prefer the product for its convenience and
liquidity.
In any case, volatility this week has been relatively well behaved.
With “10-year yields surging through 3 percent and dragging
the dollar with it, the footprint on the VIX has been minimal,” Michael Purves, Weeden Co.’s chief global strategist, wrote in a note.
