This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

VIXH ETF Touts 'Black Swan' Protection

To me, the fact that VIXH is not constantly hedged is a significant drawback bordering on absurdity.  I am not a career statistician, but I think this makes VIXH vulnerable to future black swan events rather than protecting investors from them. 

The VIXH Investor Guide (pdf) identifies only five black swan events in the past 25 years.  In other words, the sample size is much too small to be meaningful. 

Additionally, a black swan event is by definition a "surprise" event.  To claim that the element of surprise, and the associated portfolio impact, are nonexistent much of the time based on only five observations over 25 years tends to stretch statistical credibility.

Although the official expense ratio is 0.60%, the actual cost to shareholders is likely to be much higher.  The fund may have to sell a portion of each of its 500 stocks every month in order to free up cash for additional VIX call options.  It also intends to reinvest every dividend received on those 500 stocks. 

The transaction costs (brokerage fees and slippage) on up to 6,000 transactions per year (much more if you include dividend reinvestments) could have a severe performance impact. 

Hopefully, the management team has considered the cost of implementing this strategy with individual stocks versus using Vanguard S&P 500 (VOO) for the equity exposure.

Potential investors of VIXH should compare to Barclays ETN+ S&P VEQTOR ETN (VQT) before buying.

At the time of publication the author had no holdings in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Ron Rowland is the founder and president of Capital Cities Asset Management, a fee-based registered investment adviser in Austin, Texas. He is also the founder and publisher of Invest With An Edge and All Star Investor, where he has been providing market commentary and active investment advice since 1991. Opinions expressed in this article should not be considered personal recommendations to buy or sell any security.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG
VIXH $25.69 -0.27%
AAPL $126.46 -1.70%
FB $77.42 -1.80%
GOOG $533.43 -1.40%
TSLA $231.93 0.62%

Markets

DOW 17,992.86 -77.54 -0.43%
S&P 500 2,100.73 -13.76 -0.65%
NASDAQ 4,959.6410 -57.2880 -1.14%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs