Frequently Asked Questions

Can I use long volatility-linked ETPs to hedge my portfolio?

Long volatility-linked ETPs may provide some protection for a broad-based stock market position, because, historically, these products have exhibited a strong inverse correlation to the direction of the S&P 500 - in other words, when the S&P has a marked decline, volatility, VIX and VIX-Futures linked indexes tend to go up. However, several factors must first be considered before implementing a long volatility-linked ETP as a portfolio hedge, including the compounding impact of daily resetting in a leveraged product, or persistent negative roll yield.

Long volatility-linked ETPs are best-suited as short-term trading vehicles, which investors can use to profit from potential spikes in volatility. Typically, holding periods are measured in days. Long volatility-linked ETPs are not designed to be buy-and-hold hedging instruments, and investors should trade with care.

 

Investments in ETPs involve risk, including the possible loss of principal, and are not appropriate for all investors. Non-traditional ETPs, including leveraged and inverse ETPs, pose additional risks and can result in magnified gains or losses in an investment. Specific risks are outlined in the fund prospectus and may include concentration risk, correlation risk, counterparty risk, credit risk, market risk, interest rate risk, volatility risk, tracking error risk, among others. Investors should consult with their tax advisors to determine how the profit and loss on any particular investment strategy will be taxed. Tax laws and regulations change from time to time and may be subject to varying interpretations. The information in this program is provided for general education and information purposes only. No statement within this program should be construed as a recommendation to buy or sell a security or to provide investment advice.