JPM and Source launch ETF to benefit from volatility
From Products Feb 8 2012 BY: Esther Armstrong
, Senior Reporter
, Portfolio Adviser
JPMorgan and Source have launched an ETF designed to be used by "sophisticated investors" to access volatility as either a hedging strategy or as an asset class in its own right.
The JPMorgan Macro Hedge US TR Source ETF tracks one of JPMorgan's macro hedge indices and takes both long and short exposure to futures on US equity volatility, switching dependent on market conditions.
JPM said volatility as an asset class was continuing to attract attention because it tends to spike when markets crash, so is seen as a potential hedge to long equity positions.
But it added that using volatility as a hedge can be very costly as in normal market conditions a long volatility investment will tend to lose value.
With its macro hedge family of indices JPM said it tries to capture spikes in volatility during times of market stress, but also aims to generate a positive return during periods of normal market conditions.
Rui Fernandes, head of equity and fund derivatives structuring at JPM, said: "Our macro hedge indices combine long volatility exposure with a transparent source of absolute return. With more than a year of live track record the family of indices has proven able to provide a robust tail hedge through equity market sell-offs, while mitigating the usual negative carry associated with traditional outright volatility instruments."
The ETF is listed on the London Stock Exchange and traded in dollars, with a management fee of 0.25% per year. It is domiciled in Ireland and Ucits eligible and is also registered for sale across Europe.