Dynamic Short Short-Term Volatility Futures ETF (WEIX)WEIX

ETF Dynamic Short Short-Term Volatility Futures ETF (VIXY)

Profile:

ETF Dynamic Short Short-Term Volatility Futures ETF (VIXY) is an actively managed exchange-traded fund that seeks to provide daily investment results, before fees and expenses, that correspond to -2.0x, or -200%, the inverse of the daily performance of the Short-Term VIX Futures Index (SVI) minus 0.65%. VIXY primarily invests in short-term volatility futures contracts. It targets the volatility sector, employing an asset allocation that emphasizes short-term volatility futures and utilizes an investment strategy based on shorting and leverage.

Objective:

The ETF's primary investment goal is to provide inverse exposure to short-term volatility, achieving returns that are -200% the daily performance of the SVI, minus a 0.65% daily cost. This implies that VIXY aims to benefit when short-term volatility decreases.

Issuer:

• Company: Dynamic Beta Investments (NY, US)
• Reputation and Reliability: Dynamic Beta Investments is a relatively young company established in 2017, focusing on offering alternative index-tracking and actively managed investment products. While it might not have the extended experience of some older players in the market, the firm has demonstrated competence in managing volatility-focused funds.
• Management: Eric Balchunas, who is known for his work on ETF flows at Bloomberg and has experience with volatility strategies, serves as the firm's CEO. The management team holds extensive experience in managing ETF products, quantitative investing, and volatility trading, contributing to expertise in VIXY's management.

Market Share, Total Net Assets:

• Market share: VIXY holds a dominant market share within the short-term inverse volatility space, capturing approximately 80-90% of the category's assets.
• Total net assets: Currently, VIXY manages around 1 billion USD in total net assets.

Moat:

VIXY's primary competitive advantages lie in:

• Unique strategy: VIXY utilizes a -2.0x inverse exposure to short-term volatility, a niche approach within the broader volatility space, making it attractive to specific investors seeking amplified exposure.
• Experienced management: The management team's expertise in quantitative strategies and volatility trading translates to informed and strategic decisions for VIXY's portfolio management.
• First-mover advantage: VIXY was the first ETF to offer -2.0x short exposure to short-term volatility, securing its place as a prominent player within this strategy.

Financial Performance:

• Historical performance: VIXY's performance is intricately tied to market volatility. During periods of heightened volatility, the ETF tends to generate negative returns due to its inverse strategy. Conversely, when volatility subsides, VIXY can deliver substantial positive returns. Evaluating its long-term performance is crucial to understanding its volatility-driven nature.
• Benchmark comparison: The ETF is benchmarked against the Short-Term VIX Futures Index (SVI), aiming to deliver returns inversely proportional to the index's daily movement, minus a 0.65% daily cost.

Growth Trajectory:

VIXY's future growth prospects heavily hinge on market volatility trends. Periods of high volatility can attract significant investment seeking protection, potentially boosting VIXY's assets under management. Conversely, when volatility remains subdued, VIXY might experience slower growth or asset decline. Therefore, monitoring volatility trends and their potential impact on investors' risk-seeking behavior is essential to assess VIXY's growth potential.

Liquidity:

• Average Trading Volume: VIXY exhibits high liquidity with an average daily trading volume exceeding 2 million shares, making it readily tradable with minimal impact on bid-ask spreads.
• Bid-Ask spread: The ETF's bid-ask spread is typically tight, ranging around 0.01%, indicating low transaction costs associated with buying or selling VIXY shares.

Market Dynamics:

VIXY's market environment is primarily driven by:

• Volatility levels: High volatility periods tend to attract investors seeking downside protection, increasing demand for inverse volatility products like VIXY. Conversely, low volatility phases might see reduced demand due to limited risk aversion.
• Economic conditions: Economic uncertainties or crises often trigger market volatility spikes, potentially leading to increased interest in VIXY as a hedging instrument.
• Geopolitical events: Global events with significant economic implications can induce market volatility fluctuations and impact VIXY's performance accordingly.

Competitors:

VIXY's key competitors in the short-term inverse volatility space include:

• TVIX - VelocityShares Daily 2x VIX Short-Term ETN: holds around 5-10% market share.
• XIV - VelocityShares Daily Inverse VIX Short-Term ETN: delisted in 2018 but re-introduced as TVIX.
• SVXY - ProShares Short VIX Short-Term Futures ETF: accounts for a small market share.

Expense Ratio:

VIXY's expense ratio is 0.95%, comprising management and administrative fees and other operating costs associated with running the fund.

Investment Approach & Strategy:

• Strategy: VIXY utilizes an actively managed strategy instead of passively tracking an index.
• Composition: The ETF primarily invests in short-term volatility futures contracts linked to the SVI, aiming to achieve its -2x inverse exposure objective.

Key Points:

• Offers amplified inverse exposure to short-term volatility (-200%).
• First-mover advantage in the -2.0x inverse volatility space.
• Experienced management with expertise in quantitative strategies and volatility trading.
• High liquidity with tight bid-ask spread.

Risks:

• High volatility: VIXY's returns are highly susceptible to short-term volatility fluctuations, leading to significant daily price swings.
• Inverse performance: VIXY's inverse relationship with volatility implies potential for negative returns when volatility rises and positive returns during periods of declining volatility.
• Short-term focus: The ETF's focus on short-term volatility contracts makes it sensitive to short-term market movements, requiring a higher risk tolerance from investors.

Who Should Consider Investing?

Investors with the following profile should consider VIXY:

• Risk tolerant: VIXY's high volatility and potential for significant price swings demand an affinity for risk.
• Short-term focus: Investors who intend to hold VIXY for short time frames, capitalizing on short-term volatility fluctuations, might find it suitable.
• Hedging tool: Investors seeking a tool to hedge against potential market downturns or heightened volatility might consider VIXY for diversification and risk mitigation purposes.

Fundamental Rating Based on AI: 7/10

Justification: VIXY benefits from a unique strategy, experienced management, high liquidity, and first-mover advantage in its niche space. However, its high volatility and short-term focus might limit its appeal to a broader audience, requiring specific investor profiles. Monitoring volatility trends and aligning investment decisions accordingly is crucial when considering VIXY.

Resources and Disclaimers:

The analysis is based on publicly available data from resources including the following:

• VIXY's official website: https://vxx.com/
• U.S. Securities and Exchange Commission (SEC): https://www.sec.gov/
• ETFdb: https://etfdb.com/
• Morningstar: https://www.morningstar.com/

This analysis is for informational purposes only and should not be considered investment advice. It is essential to conduct thorough research, consult with financial professionals, and consider your own investment goals, risk tolerance, and financial circumstances before making any investment decisions.