London-based Tabula Investment Management has launched what it claims is the first fixed income exchange-traded fund (ETF) to track the credit volatility risk premia index.
The corporate bond ETF aims to capture volatility in index options on the iTraxx Crossover and CDX HY. In what is said to be a pioneering move for funds management on the London Stock Exchange, it offers a passive vehicle to access credit volatility risk premium.
Tabula has stated that risk premia credit volatility has “historically exceeded that seen in equity volatility.” With this latest addition to its fixed income ETF range, it aims to neutralise market exposure to spread movements “through a daily hedging approach.”
The so-called J.P. Morgan Global Credit Volatility Premium Index Ucits ETF captures the difference between realised and implied volatility in Credit Default Swap (CDS) options markets.
According to Tabula, CDS index options generate an approximate turnover of €24.1 billion every day.
Whilst replicating the returns of the J.P. Morgan Global Credit Volatility Premium Index (JCREVOLP index), the ETF hedges out exposure to credit spreads on a daily basis.
The new JCREVOLP index developed by J.P. Morgan “offers short exposure to volatility in North American and European high yield index CDS markets,” selling on both the iTraxx Crossover and CDX HY indices.
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