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Source teams up with JP Morgan to launch volatility ETF

by Emma Dunkley on Feb 06, 2012 at 10:34

Exchange Traded Fund (ETF) provider Source has teamed up with JP Morgan to launch an ETF aimed at providing long-term exposure to volatility.

The JP Morgan Macro Hedge US TR Source ETF uses a systematic strategy developed by JP Morgan, through a range of indices which aim to capture spikes in volatility or generate positive returns in normal market conditions.

As an asset class, volatility tends to spike when equity markets crash and so can be viewed as a potential hedge to long equity positions.

Source said using volatility as a hedge can be costly, and that in normal market conditions, a long volatility position can lose value. It said the JP Morgan indices can switch strategy according to market conditions.

The indices do this by taking both long and short exposure to futures on US equity volatility.

Source chief executive Ted Hood said: ‘We believe that our ETF structure – with its operational convenience and its robust management of counterparty risk – offers a clear advantage over an OTC transaction, even for the most sophisticated investors.'

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1 comment so far. Why not have your say?

Tim Page

Feb 08, 2012 at 14:16

In the past these ETFs have only been suitable for very short-term holdings as the backwardation on the VIX futures contracts has been of the order of 45% a year! That's one hell of an insurance premium.

It'll be interesting to see if or how JP Morgan have overcome this.

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