Jefferies is launching a new volatility product.  Instead of the notorious ETNs that were launched last year by Barclays iPath, this product is an ETF.  That’s a slight improvement, because with an ETF, you won’t be a creditor of the issuing company.  With the VIX Futures ETNs, you’re basically an unsecured creditor of Barclays.

Besides that, however, the ETF is still based on the same piece of junk S&P 500 VIX Short-Term Futures™ Index.  That’s not to say that S&P, Barclays or Jefferies are creating an index that, by design, is supposed to fail.  It’s just that, as long as back-month VIX futures are substantially higher than front-month VIX futures, the roll factor will cause the index to drift downward, even though VIX itself holds steady.

Here’s a graph of the S&P 500 VIX Short-Term Futures Index compared to the VIX Index itself.

Year to date, the VIX is down -12%, while the SPVXSTR -42%.  Ugh!

Because the new ETF is designed to track the index that plunged (the futures index), and not the VIX itself, an investment in this new ETF would pretty much have been a disaster.  And it will be as long as the implied volatility in the back months is higher than the volatility in the front months.

– Don

P.S. – Interestingly, the SEC filing contains all kinds of information on ticker symbols for the ETF, and for the intraday indexes (which are not provided by the various quote platforms at the present time).  The filing conveniently omits the ticker symbol for the end-of-day index value that is currently available on Bloomberg and Reuters.  Instead, the filing states that S&P will publish the daily closing level of the VIX Futures Index.