Bank of America Merrill Lynch (BAML), has teamed up with ETF Securities (ETFX), a specialist issuer of exchange-traded products, to launch IVSTOXX ETF, the first exchange-traded fund (ETF) linked to European equity volatility, listed on the London Stock Exchange.
The ETFX-BAML IVSTOXX ETF is linked to the EURO STOXX 50 Investable Volatility Index (IVSTOXX), which reflects the implied volatility of the EURO STOXX 50, an index that covers the 50 most liquid stocks across 12 European countries.
BAML notes that equity market volatility has demonstrated a degree of negative correlation with equity returns and an allocation to volatility as an asset class may therefore provide investors with diversification benefits. The IVSTOXX ETF is designed to allow investors to access this diversification through a single, listed instrument.
In contrast to other existing index products, which are not directly tradable, the IVSTOXX is directly replicable through a portfolio of listed EURO STOXX 50 options and therefore benefits from the liquidity available in the listed options market. The IVSTOXX is linked to medium-term forward volatility and is calculated independently by STOXX Limited, an index specialist.
Michael Ward, head of EMEA derivatives sales and cash sales trading, Bank of America Merrill Lynch, said, “Investors are increasingly becoming aware of the potential benefits of an exposure to volatility as a component of a diversified portfolio. The EURO STOXX 50 Investable Volatility Index makes it easy for our clients to access and trade European volatility as an asset class through a liquid and transparent index product. Offering this index as an exchange-traded fund makes it accessible to more investors; in addition, as this product is issued by a UCITS compliant platform it also benefits from reduced counterparty exposure risk having met the stringent UCITS requirements.”
Hartmut Graf, CEO of STOXX Limited, added, “We have seen the interest in volatility as an asset class grow tremendously over the past years. The EURO STOXX 50 Investable Volatility Index offers the benefits of a transparent, rules-based methodology to those market participants seeking to include volatility in their portfolio.”