Daily ETF Roundup: VXX Crashes On Equities’ Surge, VNQ Soars On Thirst For Yield

by on August 9, 2011 | ETFs Mentioned:

Tuesday was yet another roller coaster ride for markets as equities rose modestly to start the day, fell immediately following the FOMC statement, only to surge higher to close out the volatile session with multi-percentage point gains. The Dow finished the day higher by 430 points, a nearly 4% gain, while the S&P 500 and the Nasdaq posted even more robust gains of 4.7% and 5.3%, respectively. Commodity markets were also volatile on the day, as gold continued to surge, finishing around the $1,740/oz. mark, while oil which at one point fell all the way to $75.71 in Asian trading, closed the session at the $80.5 mark, a loss of about 1.0%. Other commodities were more mixed, as silver crashed by nearly 5.1% but copper gained close to 2.3%, while softs and other energy commodities finished the day close to breakeven for the most part. 

Treasury bonds and currency markets were also extremely volatile in the session as the U.S. dollar index sank to the $74 level to finish the day. Losses were especially bad against the euro and the yen but the dollar did manage to gain against the pound, albeit slightly. In Treasury markets, investors poured into government debt as the Fed declared that interest rates would stay low until ‘mid-2013′ at the the earliest, suggesting to many that the economic situation was pretty rocky. 10 Year debt fell to a yield of just 2.03% at one point in the day, rebounding to finish with a yield of 2.27%, a four basis point decline when compared to the previous session.

One of the biggest winners on the day was the Vanguard REIT ETF (VNQ) which surged by 9.1% on the day. Today’s gains came thanks to a broad market rally at the close of the session and demand by investors for higher yielding assets. With 10 Year T-Bills yielding about the same as an investment in the S&P 500, many investors looked to dividend payers in this beaten down corner of the market as a source for current income going forward. In fact, of the fund’s three top holdings, Simon Property, Vornado Realty, and Equity Residential, only Vornado finished the day up less than 9.1% while both of the other two companies posted gains exceeding 10.2% in the session. Similar performances were had in the smaller names in this fund, helping to turn around the short-term performance of this popular Vanguard ETF which has been severely beaten down over the last few trading days [see holdings of VNQ here].

One of the biggest losers in the ETFdb 60 was the iPath S&P 500 VIX Short-Term Futures ETN (VXX) which reversed its recent run-up with today’s 10.1% loss. Once again, VXX traded on volume exceeding 100 million shares for the day, and like many other products, the bulk of the move came in the final hour of trading when the rest of the markets rallied. Thanks to broad demand for equities in this time period, investors quickly sold off their positions in this ETN representation of the ‘fear index’ preferring instead to risk their capital in the now-surging equity markets. Nevertheless, even including today’s drop, VXX is still up close to 33% in the past five days alone, suggesting that while fear may have declined today, risks are still elevated and investors are still uncertain over the future of the market [see charts of VXX here].

Disclosure: No positions at time of writing.