As VIX hits multidecade low, investors retreat from volatility products

VIX ended at a 24-year low on Monday

What are investors buying when the U.S. stock market is at a historic level of quiet? Evidently, anything except volatility itself.

The largest exchange-traded product designed to track market volatility has seen heavy outflows of late, a retreat that corresponds with historic declines in the CBOE Volatility Index . On Monday, the so-called "fear index" fell 7.6% to close at its lowest level in more than 23 years (http://www.marketwatch.com/story/is-this-the-day-wall-streets-fear- gauge-hits-rock-bottom-2017-05-08).

Don't miss:This extremely quiet market could be setting a trap for investors (http://www.marketwatch.com/story/this- extremely-quiet-market-could-be-setting-a-trap-for-investors-2017-05-09)

Also:Leveraged ETFs fall out of fashion, as market waves subside (http://www.marketwatch.com/story/leveraged-etfs- fall-out-of-fashion-as-market-waves-subside-2017-05-03)

The iPath S&P 500 VIX Short-Term Futures ETN (VXX) saw outflows of $9.6 million over the past session, bringing its redemptions over the past week to $44.3 million, according to FactSet data. The outflows over both periods represent the largest of any product in the alternative space, and the weekly outflows were more than 10 times as large as the outflows for the product with the second-largest redemption. Trading has been elevated on it, however. In April, the ETN saw volume of nearly 1.1 billion shares, a monthly record.

The product, which is an exchange-traded note designed to be a short-term holding, tracks an index with exposure to VIX futures contracts that have an average maturity of one month. It has nearly $830 million in assets and is a popular way for investors to hedge against volatile times, as it tends to have an inverse correlation with the equity market.

Ahead of President Donald Trump's inauguration, the category of volatility products saw massive inflows and trading (http://www.marketwatch.com/story/investors-buy-up-volatility-etfs-going-into-the-trump-era-2017-01-19) as investors bet that the so-called "Trump rally" would stall shortly after he took office. That trade didn't work out; the iPath ETN is down about 45% thus far this year, hitting record lows.

The opposite of this trade has paid off, however, with inverse volatility products finding new fans. The ProShares Short VIX Short-Term Futures ETF (SVXY) has gotten inflows of $66.9 million over the past week, and it is up nearly 70% thus far in 2017, hitting record highs.

However, trading isn't as active as it has been in the past. Total trading in April was about 67 million shares, below its March total and substantially below its November total of 107 million shares.

-Ryan Vlastelica; 415-439-6400; AskNewswires@dowjones.com


  (END) Dow Jones Newswires
  05-09-17 0935ET
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