On Thursday, ETF newcomer Acruence Capital launched its first fund, the Acruence Active Hedge U.S. Equity ETF, an actively managed large cap equity ETF that uses VIX options to reduce volatility.
The fund, which is listed on the NYSE, carries an expense ratio of 0.83%.
According to the press release announcing the launch, XVOL holds both S&P 500 large caps and options contracts. At least 80% of its portfolio is invested in the constituents of the S&P 500 Index, generally holding these stocks according to the same weights as the index. This exposure is supplemented with options contracts on the CBOE Volatility Index (also known as “the VIX”), an index that estimates expected volatility in the S&P 500 Index over the next 30 days. These options are expected to have a time to maturity of six months or less.
To determine the quantity of contracts needed, as well as their strike prices and expiration dates, Acruence Capital (the ETF’s sub-advisor) uses a proprietary, volatility-based algorithm. The derivatives will be purchased via Acruence’s Cayman Islands subsidiary, into which the fund may invest up to 20% of its total assets.
XVOL’s holdings in VIX options is evaluated on a monthly basis, calculated based on Acruence’s expectations of volatility, the level of the VIX, and the price of VIX options. Generally, this monthly allocation will target roughly 1/12th of an annual allocation, which in turn should comprise anywhere from 2% to 5% of XVOL’s total assets.
New to the ETF space, Acruence is known for using data science techniques to evaluate and optimize investment strategies. Dr. John Elder, a partner at Acruence, founded Elder Research, one of the world’s most reputable data science companies.
Acruence partnered with ETF white-label issuer Tidal ETF Services to bring XVOL to market.
For more information, visit www.Acruence.com.