Most VIX-focused exchange-traded products have tumbled over the course of the last several months, as surprisingly strong equity markets have led to a consistently depressed VIX. The relatively low levels of volatility, coupled with persistent and steep contango in futures markets, have pushed down most of the products in the Volatility ETFdb Category sharply on the year.
Against this backdrop, iPath announced recently that it will be implementing a 1-for-4 reverse split on its volatility focused ETN VXX, which currently has over $1 billion in assets. VXX has lost about 75% of its value since the beginning of the year and has declined more than 95% over the past few years [see VXX Returns].
Barclays Bank has the right to cause a reverse split if the indicative value of the ETNs falls below $25 per share. After its recent freefall, shares of VXX are trading at less than $10; the 1-for-4 reverse split should push the value of the post-split shares above $30. As a result of the announced transaction, each four shares of VXX will be replaced by one share with a new (increased) value.
The reverse split will go into effect on October 5; the shares will begin trading on a reverse split adjusted basis on the NYSE Arca and Toronto Stock Exchange on that date.
VIX ETPs in Freefall
As the VIX has settled consistently below 20 and steep contango has persisted in futures markets; products offering exposure to the “fear index” have been hammered. Among ETPs offering exposure to short-term volatility futures, performance has been miserable; most are down at least 50% on the year, while some that offer leveraged exposure (such as TVIX and UVXY) have lost close to 95% of their value since the beginning of 2012.
Conversely, ETPs that effectively sell VIX futures have thrived; XIV is up more than 150% since the beginning of the year.
Disclosure: No positions at time of writing.