Asset manager, J.P. Morgan, and exchange traded product provider, Source, have launched a Dublin-domiciled ETF that offers a cost efficient way for investors to capitalise on volatility.
The Dublin-domiciled J.P. Morgan Macro Hedge US TR Source ETF aims to provide cost-effective, long-term exposure to volatility, via a systematic strategy developed by J.P. Morgan. It is designed for sophisticated investors to either use as a hedging tool or as a way to take stand-alone volatility exposure.
Volatility as an asset class continues to attract attention. Since volatility tends to spike when equity markets crash, it is seen as a potential hedge to long equity positions. However, using volatility as a hedge can be very costly, according to J.P. Morgan.
In normal market conditions, a long volatility investment will typically lose value. J.P. Morgan’s Macro Hedge family of indices take an innovative two-pronged approach. In times of market stress, the indices aim to capture spikes in volatility; in normal market conditions, they aim to generate a positive return.
“Our Macro Hedge Indices combine long volatility exposure with a transparent source of absolute return” says Rui Fernandes, Head of Equity and Funds Derivatives Structuring at J.P. Morgan.
“With more than a year of live track record and significant client investments in note and derivative format, the Macro Hedge family of indices has proven able to provide a robust tail hedge through equity market sell-offs, while mitigating the usual negative carry associated with traditional outright long volatility instruments.”
The new J.P. Morgan Macro Hedge US TR Index takes both long and short exposure to futures on US equity volatility, switching from long to long/short depending on market conditions.
Commenting on the launch, Source CEO Ted Hood said, “Source continues to deliver cutting-edge content alongside our standard benchmark products. We believe that our ETF structure – with its operational convenience and its robust management of counterparty risk – offers a clear advantage over an OTC transaction, even for the most sophisticated investors.”
Hood also noted the interest in volatility as a tradable asset class. “We see escalating interest in volatility in today’s markets”, he said, “but the challenge is always the high cost, which makes this product particularly interesting.”
The J.P. Morgan Macro Hedge US TR Source ETF is listed on the London Stock Exchange and trade in USD. It is UCITS eligible and registered for sale in Austria, Finland, France, Germany, Ireland, Italy (for institutional investors only), Luxembourg, the Netherlands, Norway, Sweden and the UK.
There is an annual management fee of 0.25%. An index cost of 0.75% per annum and certain notional rebalancing costs are included in the calculation of the Benchmark.
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