Have you ever looked at the stock market and been terrified in the direction you thought it was going? Well, there is a way to invest in that fear magnitude using the VIX ETF (indirect way, detailed below). Check out the top VIX ETF Canada below and see if they’re right for you. But first, let’s explain how the VIX works.
What is The Fear Index?
The CBOE Volatility Index (VIX) is a proprietary index that measures expected equity market volatility based on S&P 500 index options. VIX Index was established in 1993 and by 2004 VIX futures and options contracts were trading on the stock market.
The VIX index is often referred to as the “fear index” because it is seen as an indicator of an investor’s confidence or fear of the market, i.e. the level of investment risk.
The VIX Index measures the short-term market volatility of S&P 500 Index (SPX) option prices. It is derived from various call and put options. VIX values above 30 are typically associated with high volatility, and VIX values below 20 are associated with low volatility.
Best VIX ETF Canada
Note: It is such an obscure index to invest in, there is only one VIX ETF Canada. So I have included some American ones below:
1. (HUV) Horizons BetaPro S&P 500 VIX Short-Term Futures ETF
- Ticker: HUV.TO
- Inception Date: December 15, 2010
- Assets Under Management: $83.56 million
- Management Expense Ratio: 1.00%
- Stock Price: $7.56
- YTD Return: -10.63%
U.S. dollar gains or losses on the Fund’s investments are hedged into Canadian dollars less fees, expenses, dividends, brokerage fees, and other transaction costs.
The idea behind this fund is a short-term hedge against spikes in market volatility in the S&P 500 Index. The fund is an expensive fund to own, with 1.00% of his MER due to the active strategy his manager uses to mimic his VIX index.
Horizons BetaPro S&P 500 VIX Short-Term Futures 2X Daily Bull ETF (HVU) was another short-term futures ETF that launched on TSX alongside. Also, the BetaPro HUV ETF but was linked to the June 5, 2018 high. Closed due to risk to -Risk VIX ETF takes a speculative approach.
Along with the BetaPro HUV ETF, it would have been the only VIX ETF listed in Canada.
- Ticker: VIXM
- Inception Date: January 03, 2011
- Assets Under Management: US$95.9 million
- Management Expense Ratio: 0.85%
- Stock Price: $32.26
- YTD Return: 5.61%
The ProShares VIX Mid-Term Futures ETF (VIXM) aims to provide pre-fees and expenses investment results that reflect the performance of the S&P 500 VIX Mid-Term Futures Index.
The fund is designed for sophisticated investors looking to profit from the increased expected volatility of the S&P 500 Index as measured by VIX futures contract prices.
The performance of the ProShares VIXM ETF is intended for short-term use and has historically been negatively correlated with S&P 500 returns.
Since the fund does not directly track the performance of the CBOE VIX index, we would expect its performance to differ dramatically from that of his VIX index. Fund purchases are high, with an MER of 0.85%.
- Ticker: SVXY
- Inception Date: October 03, 2011
- Assets Under Management: US$404.11 million
- Management Expense Ratio: 0.95%
- Stock Price: $56.46
- YTD Return: -8.88%
The ProShares Short VIX Short-Term Futures ETF (SVXY) seeks to provide investors with daily investment results that are the reciprocal of half the daily performance of the S&P 500 VIX Short-Term Futures Index (fees and expenses before deduction).
The fund is essentially not linked to the VIX index and can be expected to perform significantly different than the VIX.
The fund is designed for sophisticated investors looking to benefit from lower expected volatility in the S&P 500 based on VIX futures contract prices. Also, actively managed short-term SVXY ETF is a risky and expensive fund with an MER of 0.95%.
- Ticker: UVXY
- Inception Date: October 03, 2011
- Assets Under Management: US$974.08 million
- Management Expense Ratio: 0.95%
- Stock Price: $8.75
- YTD Return: -28.26%
The ProShares Ultra VIX Short-Term Futures ETF (UVXY) is a fund designed to provide daily investment results equal to 1.5x the daily performance of the S&P 500 VIX Short-Term Futures Index.
The fund is compared to an index of VIX futures contracts, not the CBOE Volatility Index itself, so you can expect the fund to perform significantly different than the 1.5x performance of his VIX index.
The UVXY ETF is designed for sophisticated investors looking to profit from the expected volatility increase in the S&P 500 based on the price action of VIX futures contracts. Furthermore, intended for short-term use, this fund is a volatile and risky financial instrument with a high MER of 0.95%.
5. (VXX) IPath Series B S&P 500 VIX Short-Term Futures ETN
- Ticker: VXX
- Inception Date: January 19, 2018
- Assets Under Management: US$821.82 million
- Management Expense Ratio: 0.89%
- Stock Price: $21.14
- YTD Return: -11.42%
The iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX) is one of the largest and best-performing VIX ETFs despite being technically structured as an ETN. Also, the VXX ETN is his 30-year ETN with month 1 and month 2 futures contracts expiring 23 January 2048.
It’s important to remember that the VXX ETN is not a spot investment in the VIX. Rather, it is linked to an index composed of VIX futures contracts.
ETN performance can deviate significantly from the real-time performance of the VIX index. A high-risk, high-volatility fund can have a high MER of 0.89%.
Should You Invest In VIX ETF Canada?
Investing in VIX ETF Canada is a very speculative play. In fact, many consider it to be more of an investment capital bet as they are not buying any value-generating assets. Moreover, any self-motivated investor who understands the risk of losing some or all of their initial investment can consider investing in the VIX.
Please note that the VIX ETF does not necessarily reflect the VIX Index itself. Rather, these funds attempt to mimic indices that are virtually non-investable. VIX ETF return patterns can differ significantly from VIX index return patterns. These ETFs are also heavily dependent on the VIX futures curve, and these funds reduce their positions over time.
Decreased exposure means less money to roll into the next futures contract when the current contract expires. This process repeats itself, with several significant losses occurring over a typical 12-month period, with the result that the fund almost always loses more than it could have earned over the long term.
Traders who are familiar with and understand these instruments tend to view them as very short-term tactical instruments rather than long-term buy-and-hold investments. Traders tend to speculate on his VIX ETF. His VIX ETF in the short term is more sensitive to his 1-day index than his VIX ETF in the medium term. Also, the VIX ETF is not strictly an ETF like most other ETFs. These are also offered in the form of Exchange-Traded Notes (ETN) and commodity pool structures.
How Do You Buy VIX Calls?
Purchasing a VIX call option contract that gives you the right to buy the VIX can be viewed as a better hedge against a decline in the S&P 500 than buying an SPX put option that gives you the right to sell the VIX instead of buying it can do. Also, the VIX is trading within a range with a bottom of around 10. If it hits zero, it means the SPX daily movement is expected to be zero.
In the past, when the SPX crashed, the VIX index rose sharply, but it can’t stay consistently high because it means the market expects big changes over the long term. No matter how volatile, a fixed trading range effectively means that VIX options offer a good opportunity for traders to speculate. However, the option value is derived from the forward value using the current month and next month’s option contracts. This involves greater volatility than other financial instruments.
Investing in the VIX is a very risky index, as it can go up and down at the same time, which can lead to huge financial losses for investors.
How Can I Get a Long VIX Index?
Like all indices, the VIX cannot be purchased directly. Alternatively, you can take a position in VIX and invest in volatility through VIX-based Exchange Traded Products (ETPs) such as VIX ETFs and VIX ETNs.
If you want exposure to the Long VIX index, we recommend you consider VelocityShares’ Daily Long VIX Short Term ETN. But the ETN has been delisted and further issuance has been suspended.
How To Buy The Top VIX ETF Canada
The cheapest way to buy ETFs is through a discount broker. My top choices in Canada are:
- 105 commission-free ETFs to buy and sell
- Excellent customer service
- Top-notch market research tools
- Easy-to-use and stable platform
- Stocks & ETFs buy & sell have $0 trading fees
- Desktop and mobile trading
- Reputable fintech company
- Fractional shares available
- ETF buys have $0 trading fees
- Excellent market research tools
- Most types of registered accounts are available
All of these funds tend to perform significantly differently than the VIX index. While some of these ETFs and ETNs will rise and fall in line with the VIX, the speed and lag of their price movements make even the most experienced traders an entry point for profitable trading. Identifying points and exit points can be difficult.
However, market volatility investing is best suited for short-term investors who can quickly change positions if the market turns unfavorable. ETFs typically provide a convenient way to invest in a range of assets. This is something you don’t get with the VIX ETF.
Read Also: Top 10 Reasons Why You Need Life Insurance