The First Trust CBOE S&P 500 VIX Tail Hedge Fund (VIXH) is a tail-risk hedge ETF rolled out on August 30, 2012, by First Trust.

The fund will track the CBOE VIX Tail Hedge Index (VXTH) with an annual expense ratio of 0.60 percent[1].

The VIXH will hold a basket of S&P 500 stocks and to hedge against a downturn will buy options on the VIX Index.

More specifically, from their filing:

"A steep and sudden drop in equity market prices, such as a downward move of 20% or more in a month, is thought of as an unlikely or "tail" occurrence. The Index is designed to help cope with these extreme downward movements in the market by hedging its portfolio through purchasing call options on the VIX Index, or "tail hedging." Historically, there has been a negative correlation between the VIX Index and the S&P 500; during periods of time when the S&P 500 declines in value, the VIX Index tends to rise. Therefore, the Fund's purchase of call options on the VIX Index may offset some of the losses incurred in the S&P 500 due to a tail occurrence; however, there is no guarantee that the tail hedging strategy utilized by the Index, and in turn the Fund, will offset such losses. Additionally, under certain circumstances, the Index, and in turn the Fund, may be invested only in stocks in the S&P 500, which would prevent the Fund from hedging against any losses caused by increased volatility due to an unexpected event."[2]



References

  1. First Trust Exchange-Traded Fund Registration. SEC.
  2. First Trust Exchange-Traded Fund Registration. SEC.


Last modified on 5 September 2012, at 07:52