Bloomberg news is reporting today that:
Securities that usually gain value as the U.S. stock market gets calmer have never been more popular with investors. That concerns strategists at Deutsche Bank AG.
A combination of investor inflows and declining equity volatility has pushed the market value of the VelocityShares Daily Inverse VIX Short-Term ETN to about $1.2 billion and sent the ProShares Short VIX Short-Term Futures ETF (SVXY) to $564 million, data compiled by Bloomberg show. Both reached records last week.
Interest is building in the exchange-traded products as they recover from swoons that erased almost half their share price as markets buckled and the Standard & Poor?s 500 Index tumbled earlier this year. That could spell trouble, according to Rocky Fishman, an equity derivatives strategist at Deutsche Bank AG in New York. Another exodus could whipsaw traders and even exacerbate moves in the Chicago Board Options Exchange Volatility Index.
Dip-Buying
About $544 million in inflows were added to the VelocityShares ETN (XIV) last month, swelling its market capitalization from $622 million on Oct. 1, while the ProShares ETF absorbed $264 million, the highest monthly inflows for both products since they started trading.
Betting against volatility has been profitable for holders of the securities, who use them to hedge portfolios or speculate on the future path of the VIX, a gauge of volatility based on S&P 500 options prices. Shares of both have soared more than 400 percent since the end of 2011 as the VIX has plunged 40 percent.
Staying Power
The end of the Federal Reserve?s bond-buying program, a decision the central bank announced last week, could introduce more volatility into the market. When the Fed concluded its first round of quantitative easing in March 2010, the VIX more than doubled over the next two months, reaching a closing-level peak of 46. When the second round of QE ended in June 2011, the volatility gauge was near 16 and then jumped, averaging about 30 through the third quarter.