BarCap builds on volatility ETN with new listings

Barclays Capital has listed a second volatility iPath ETN on the London Stock Exchange, along with a first listing in Milan

New London listed iPath gives access to volatility

Barclays Capital has added to its iPath volatility exchange-traded notes (ETNs) offering with a mid-term product based on the European VStoxx, listed in London.

The iPath VStoxx Mid-Term Futures ETN complements the existing iPath VStoxx short-term futures ETN, which was launched in April this year.

The medium-term futures note will provide access to European volatility for buy and hold investors.

"With the short-term futures product, you get a high beta to the underlying VStoxx Index. When the VStoxx moves, the short-term futures ETN moves closely in line with it," says Natasha Jhunjhunwala, Equity and Funds Structured Markets, Barclays Capital in London.

"If you are looking for a short-term investment that will react very quickly to moves in the market, the short-term futures products could be the products for you.

"However, when trading VStoxx futures you get the carry effect from the fact that the futures trade higher than the spot... you have the highest cost of carry at the front-end of the curve. That will slowly deteriorate the performance of the product in stable markets."

The mid-term futures product has lower roll costs as the contracts are further along the futures curve, which makes it more suitable for buy and hold investors.

The short-term futures ETN launched the day before the news about a potential Greek default, which pushed the price of the product up. Inflows have increased over the last month as investors have taken the opportunity to buy protection while volatility is lower and it currently has €77 million of shares outstanding.

Jhunjhunwala says that she expects volatility to remain a popular asset class as products like the ETNs make it easily accessible in a transparent and liquid form. "2008 showed people that while diversification makes sense, when there is an extreme event the asset classes are not all that de-correlated. Investors have begun to like volatility as an asset class as it is the most effective tool they can have."

ING Investment Management has predicted that volatility in markets will remain high next year. In a report from its Annual Outlook Conference held yesterday it said that the environment would be 'tough' and 'volatile', which will make the notes even more relevant for investors seeking protection.

In the US, Barclays Capital already has both a short and medium-term futures note on the Vix index. The ETNs have been very popular and a market capitalisation of around US $3 billion.

The European short-term futures ETN is listed in London and Frankfurt. Barclays Capital has also just announced that it has listed an iPath ETN on the VStoxx Short-Term Futures Index on the Borsa Italiana, which is its first ETN listing there.