Bank of America Merrill Lynch, in conjunction with ETF Securities, has launched the first Exchange Traded Fund (ETF) linked to European equity volatility, listed on the London Stock Exchange. The ETFX-BofAML IVSTOXX ETF is linked to the EURO STOXX 50 Investable Volatility Index (the Investable VSTOXX, or IVSTOXX), an investable index which reflects the implied volatility of the EURO STOXX 50……
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In contrast to other existing index products, which are not directly tradable, the IVSTOXX is directly replicable through a portfolio of listed EURO STOXX 50 options and therefore benefits from the liquidity available in the listed options market. The IVSTOXX is calculated independently by STOXX Limited. The index is linked to medium-term forward volatility, which has historically provided efficient access to volatility as an asset class.
Equity market volatility has consistently demonstrated a high degree of negative correlation with equity returns, particularly when equity markets are falling. An allocation to volatility as an asset class may therefore provide investors with diversification benefits when they need it most. The ETFX-BofAML IVSTOXX ETF allows investors to access this diversification and tail risk protection in a highly liquid format, through a single, listed instrument.
Michael Ward, head of EMEA Derivatives Sales and Cash Sales Trading, at Bank of America Merrill Lynch, commented: “Investors are increasingly becoming aware of the potential benefits of an exposure to volatility as a component of a diversified portfolio. The EURO STOXX 50 Investable Volatility Index makes it easy for our clients to access and trade European volatility as an asset class through a liquid and transparent index product. Offering this index as an exchange-traded fund makes it accessible to more investors; in addition, as this product is issued by a UCITS compliant platform it also benefits from reduced counterparty exposure risk having met the stringent UCITS requirements.”
Mark Weeks, CEO of ETF Exchange, commented: “ETF Securities is pleased to be working with Bank of America Merrill Lynch on the launch of the ETFX-BofAML IVSTOXX ETF. Bank of America Merrill Lynch is well positioned to provide investors with access to new market opportunities and strategies. This effort marks an important step in ETF Exchange’s evolution as an issuer of specialist exchange traded funds.”
Hartmut Graf, CEO of STOXX Limited, commented: “We have seen the interest in volatility as an asset class grow tremendously over the past years. The EURO STOXX 50 Investable Volatility Index is an innovative approach to measure the market’s sentiment about economic uncertainty; and offers the benefits of a transparent, rules based methodology to those market participants seeking to include volatility in their portfolio.”
|Product name||ETFX-BofAML IVSTOXX ETF|
|Fund and trading currency||EUR|
|Total Expense Ratio||0.80% per annum|
|Listing||London Stock Exchange|
|Listing Date||28 February 2011|
|Index Name||EURO STOXX 50 Investable Volatility Index|
|Authorised Participant||Merrill Lynch International|
|Swap Counterparty||Merrill Lynch International Bank Ltd|