Source teams up with JP Morgan to launch volatility ETF

Source has joined forces with JP Morgan to launch an exchange traded fund 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 family 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 points out using volatility as a hedge can be costly, and that in normal market conditions, a long volatility position can lose value. It said by taking a dynamic, two-pronged approach, 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 CEO 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.

He added: ‘We see escalating interest in volatility in today’s markets, but the challenge is always the high cost, which makes this product particularly interesting.’