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Volatility roared to the highest level since August after President Donald Trump’s sweeping trade tariffs resulted in a bloodbath in U.S. stocks. The S&P 500 suffered its biggest one-day decline since 2020.
The volatility level represented by the CBOE Volatility Index, also known as the fear gauge, jumped about 40% on Thursday to above 30, a level not seen in nearly eight months. This suggests that market worries have started to set in. This fear gauge tends to outperform when markets are declining or fear levels about the future are high.
Trump’s new sweeping tariff has stoked fears of an all-out trade war and a global economic recession. The new administration imposed sweeping tariffs of 10% on all U.S. imports, effective April 5, alongside significantly higher duties on key trading partners. The new tariffs include a 34% rate on China, 20% on the European Union, 46% on Vietnam, 32% on Taiwan and 26% on India, all set to take effect on April 9. In total, approximately 185 countries will be impacted, pushing U.S. tariff rates to their highest level in over a century.
According to JPMorgan economist, the tariffs represent the biggest tax hike since 1968 and could push inflation up by 1.5% this year, based on the Federal Reserve’s preferred measure (read: New Tariff Worsens Trade War Fears: 5 Safe Haven ETFs to Buy).
China has urged the United States to withdraw its latest tariffs and vowed countermeasures to protect its economic interests. Meanwhile, the European Union is preparing retaliatory measures should negotiations fail.
The new administration also implemented a 25% tariff on global car and truck imports on April 3, with additional duties on automotive parts set to take effect on May 3. All these policies point to a deteriorating macroeconomic backdrop.
Investors could benefit from the rising market volatility. Several ETF/ETN options are available in the market that can provide some exposure to volatility. These products have proven to be short-time winners in turbulent times. Below, we have highlighted short-term volatility products that will move higher as long as market turmoil lingers.
iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX - Free Report)
iPath Series B S&P 500 VIX Short-Term Futures ETN focuses on the S&P 500 VIX Short-Term Futures Index, which provides access to equity market volatility through CBOE Volatility Index futures and offers exposure to a daily rolling long position in the first and second-month VIX futures contracts. iPath Series B S&P 500 VIX Short-Term Futures ETN is popular and liquid with AUM of $272.7 million and an average daily volume of 6.6 million shares. It charges 89 bps in annual fees and spiked 24.8% yesterday.
ProShares VIX Short-Term Futures ETF provides long exposure to the S&P 500 VIX Short-Term Futures Index, which measures the returns of a portfolio of monthly VIX futures contracts with a weighted average of one month to expiration. ProShares VIX Short-Term Futures ETF has amassed $163.3 million in AUM and charges 85 bps in fees per year. It trades in a volume of 2 million shares per day on average and surged 24.5% yesterday.
Investors seeking substantial gains in a short time frame may consider this leveraged volatility ETF. ProShares Ultra VIX Short-Term Futures ETF offers exposure to one and one-half times (1.5X) the daily performance of the S&P 500 VIX Short-Term Futures Index. It has accumulated $303.1 million and charges 95 bps in annual fees. It trades in a volume of 20 million shares per day on average and soared 37% on April 3.
2x Long VIX Futures ETF seeks twice the performance of the Long VIX Futures Index, charging investors 1.77% in annual fees. The Index measures the daily performance of a theoretical portfolio of first and second-month VIX futures contracts that are rolled daily. UVIX has amassed $174.4 million in its asset base and trades in an average daily volume of 7 million shares. It skyrocketed 49% in yesterday's trading session.
Bottom Line
Investors should note that these products are suitable only for short-term traders. This is because, most of the time, the VIX futures market trades in a condition known as contango, a situation where the near-term futures are cheaper than the long-term futures contracts. As volatility ETFs and ETNs like VXX must roll from month to month in order to avoid delivery, the situation of contango can eat away returns over long periods (see: all the Volatility ETFs here).
However, given the current market conditions, now seems to be a good time to add these products to your portfolio.
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Volatility ETFs Roar on Trump's New Tariff Woes
Volatility roared to the highest level since August after President Donald Trump’s sweeping trade tariffs resulted in a bloodbath in U.S. stocks. The S&P 500 suffered its biggest one-day decline since 2020.
The volatility level represented by the CBOE Volatility Index, also known as the fear gauge, jumped about 40% on Thursday to above 30, a level not seen in nearly eight months. This suggests that market worries have started to set in. This fear gauge tends to outperform when markets are declining or fear levels about the future are high.
Trump’s new sweeping tariff has stoked fears of an all-out trade war and a global economic recession. The new administration imposed sweeping tariffs of 10% on all U.S. imports, effective April 5, alongside significantly higher duties on key trading partners. The new tariffs include a 34% rate on China, 20% on the European Union, 46% on Vietnam, 32% on Taiwan and 26% on India, all set to take effect on April 9. In total, approximately 185 countries will be impacted, pushing U.S. tariff rates to their highest level in over a century.
According to JPMorgan economist, the tariffs represent the biggest tax hike since 1968 and could push inflation up by 1.5% this year, based on the Federal Reserve’s preferred measure (read: New Tariff Worsens Trade War Fears: 5 Safe Haven ETFs to Buy).
China has urged the United States to withdraw its latest tariffs and vowed countermeasures to protect its economic interests. Meanwhile, the European Union is preparing retaliatory measures should negotiations fail.
The new administration also implemented a 25% tariff on global car and truck imports on April 3, with additional duties on automotive parts set to take effect on May 3. All these policies point to a deteriorating macroeconomic backdrop.
Investors could benefit from the rising market volatility. Several ETF/ETN options are available in the market that can provide some exposure to volatility. These products have proven to be short-time winners in turbulent times. Below, we have highlighted short-term volatility products that will move higher as long as market turmoil lingers.
iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX - Free Report)
iPath Series B S&P 500 VIX Short-Term Futures ETN focuses on the S&P 500 VIX Short-Term Futures Index, which provides access to equity market volatility through CBOE Volatility Index futures and offers exposure to a daily rolling long position in the first and second-month VIX futures contracts. iPath Series B S&P 500 VIX Short-Term Futures ETN is popular and liquid with AUM of $272.7 million and an average daily volume of 6.6 million shares. It charges 89 bps in annual fees and spiked 24.8% yesterday.
ProShares VIX Short-Term Futures ETF (VIXY - Free Report)
ProShares VIX Short-Term Futures ETF provides long exposure to the S&P 500 VIX Short-Term Futures Index, which measures the returns of a portfolio of monthly VIX futures contracts with a weighted average of one month to expiration. ProShares VIX Short-Term Futures ETF has amassed $163.3 million in AUM and charges 85 bps in fees per year. It trades in a volume of 2 million shares per day on average and surged 24.5% yesterday.
ProShares Ultra VIX Short-Term Futures ETF (UVXY - Free Report) )
Investors seeking substantial gains in a short time frame may consider this leveraged volatility ETF. ProShares Ultra VIX Short-Term Futures ETF offers exposure to one and one-half times (1.5X) the daily performance of the S&P 500 VIX Short-Term Futures Index. It has accumulated $303.1 million and charges 95 bps in annual fees. It trades in a volume of 20 million shares per day on average and soared 37% on April 3.
2x Long VIX Futures ETF (UVIX - Free Report)
2x Long VIX Futures ETF seeks twice the performance of the Long VIX Futures Index, charging investors 1.77% in annual fees. The Index measures the daily performance of a theoretical portfolio of first and second-month VIX futures contracts that are rolled daily. UVIX has amassed $174.4 million in its asset base and trades in an average daily volume of 7 million shares. It skyrocketed 49% in yesterday's trading session.
Bottom Line
Investors should note that these products are suitable only for short-term traders. This is because, most of the time, the VIX futures market trades in a condition known as contango, a situation where the near-term futures are cheaper than the long-term futures contracts. As volatility ETFs and ETNs like VXX must roll from month to month in order to avoid delivery, the situation of contango can eat away returns over long periods (see: all the Volatility ETFs here).
However, given the current market conditions, now seems to be a good time to add these products to your portfolio.