(Bloomberg) -- Two US funds that wager on the scale of the stock market’s swings are launching Tuesday, expanding the world of exchange-traded products that give everyday investors the ability to place the type of bets once reserved for Wall Street speculators.
The ConvexityShares 1x Spikes Futures ETF (ticker SPKX) and the ConvexityShares Daily 1.5x Spikes Futures ETF (SPKY) peg their performance to a measure of equity-price moves, with the latter allowing investors to place an amplified bet.
The two will track the Spikes Futures Short-Term Index. That index is based on the volatility of the SPDR S&P 500 ETF (SPY), a $393 billion fund tethered to the benchmark index.
The launch is an effort to seize on a potential outbreak of volatility as sentiment swings between optimism about the economic outlook and fears of a recession.
“The launch of ConvexityShares ETFs is diversifying the volatility space, as it provides market participants with a new way to get exposure to SPY volatility and offers a powerful tool to manage risk while seeking to capitalize on moves in volatility,” said Andy Nybo, a spokesperson MIAX, which is part of the venture behind the funds. “ConvexityShares carefully designed its ETFs, specifically avoiding features that may have caused market disruptions in the past.”
Demand for leveraged and inverse products -- or those that allow one to bet on a market drop -- has been booming in the last few years amid an influx of retail investors and rising market turbulence in 2022. The proliferation of such ETFs has drawn heightened scrutiny from regulators concerned that investors don’t understand the risks, with both the Securities and Exchange Commission and the Financial Industry Regulatory Authority mulling new regulations on such products.
Two volatility ETFs that launched earlier this year have continued to attract investors. The 1x Short VIX Futures ETF (SVIX) and 2x Long VIX Futures ETF (UVIX) have seen trading volumes steadily rise since their launch this spring. SVIX and UVIX are revamped versions of the products that collapsed in the 2018 and delisted after the market turmoil early in the pandemic.
The pair have attracted a combined $211 million of inflows in less than five months of trading. SVIX and UVIX track gauges linked to the Cboe Volatility Index, or VIX, a measure of expected swings in the S&P 500. UVIX has seen eight consecutive weeks of inflows even as its price was cut roughly in half as stock prices rebounded from their lows.
The new ConvexityShares volatility products carry lower expense ratios than some of its competitors, with SPKX charging 0.65% and SPKY 0.79%.
“They can be very dangerous for people who don’t understand them or know how to use them,” said James Seyffart, Bloomberg Intelligence ETF analyst. “But they can also be fantastic tools for someone who knows what they’re doing.”
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