Rising demand for ETFs that track volatility

ETFThe turbulent market conditions seen this year have boosted demand for exchange-traded funds that offer exposure to volatility. There are now more than 20 exchange-traded products with nearly $3 billion in assets that track one of two volatility indices from Standard & Poor's. These indices are based on VIX, a measurement that seeks to capture the market expectation of stock market volatility over the next 30 days and which is often called the “fear index”. S&P Indices said its research shows that adding volatility to an equity portfolio based on the S&P 500 can substantially reduce risk without having much effect on returns. The firm said that on a day when the S&P 500 falls, the likelihood that the S&P 500 VIX Short-Term Futures Index will rise is 78%. The likelihood of the S&P 500 VIX Mid-Term Futures Index rising is 77%, it said. If the S&P 500 falls by more than 1% in a day, the likelihood that the indices will rise is 95% and 96%, it said. ©2011 funds europe

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