U.S. volatility fund sponsor tweaks strategy after market plunge

From Reuters - February 23, 2018

NEW YORK (Reuters) - A company behind U.S.-based funds tied to Wall Streets fear gauge is making changes to its investment strategy after a sudden market plunge this month routed traders betting on the complex instrument.

Investors once-profitable wagers on low or stable market volatility met a catastrophic end on Feb. 5 as products indirectly linked to that fear gauge, the CBOE Volatility Index, caved after the U.S. stock market closed in an incident now being probed by securities regulators.

Two exchange-traded products that effectively bet on low volatility shut after shedding most of their value earlier this month, including the Credit Suisse Group AG-issued VelocityShares Daily Inverse VIX Short-Term Exchange-Traded Note, but others stayed on the market and attracted new demand from investors despite major losses of their own.

REX Shares LLC, which sponsors two volatility-linked products, on Friday announced adjusting those funds so they invest in a different set of underlying instruments than they had before.

In a statement, the company, founded and run by Credit Suisse and VelocityShares veteran Greg King, suggested the changes to the REX VolMAXX Long VIX Weekly Futures Strategy ETF and REX VolMAXX Short VIX Weekly Futures Strategy ETF would make the products less volatile.

The tweaks are technical. The funds manager will now invest primarily in futures contracts linked to VIX with two to six months to expire, according to the statement, up from less than one month. The funds will likely also reduce their exposure to volatility-linked products managed by other companies, the statement said. The changes are due to take effect by April 25.


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