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STOXX Limited, a global index provider and creator of the leading European equity indices, today announced the launch of the EURO STOXX 50 Volatility Mid-Term Futures Index (VSTOXX Mid-Term Futures Index). The new index is an addition to the existing VSTOXX Short-Term Futures Index. Both indices measure the performance of a hypothetical, rolling portfolio invested into constant maturity implied volatilities on the underlying EURO STOXX 50 Index.
The VSTOXX Mid-Term Futures Index has been licensed to Barclays Capital to underlie an exchange-traded note (ETN).
"The VSTOXX Mid-Term Futures Index is the latest addition to our range of innovative and complex strategy indices," said Hartmut Graf, chief executive officer, STOXX Ltd. "With a rising interest in volatility as an asset class of its own, the new index complements the existing VSTOXX Short-Term Futures Index. We are now offering market participants an opportunity to also measure the return from rolling long positions in the mid-term EUREX VSTOXX futures contracts through a sophisticated and rules-based index."
"The launch of the second investible VSTOXX Futures Index complements the existing VSTOXX offering by providing access to longer dated volatility exposure, which typically exhibits lower carry costs in stable markets," said Antti Suhonen, head of origination, Equity and Fund Structured Markets (EFS) at Barclays Capital. "It therefore could be suited for buy-and-hold investors wishing to allocate part of their portfolio to an asset class which may deliver positive returns in times of market distress. Barclays Capital will soon offer direct access to the index in a simple and transparent format through an iPath ETN."
The VSTOXX Mid-Term Futures Index replicates a hypothetical portfolio which measures the returns from a rolling investment made into four VSTOXX futures contracts traded on EUREX with a remaining maturity of four, five, six and seven months.
At the beginning of the futures contracts' maturity, the weight of the index is allocated in equal parts to the fourth, fifth and sixth month contracts. The index then rolls from the fourth month futures contract into the seventh month futures contract. On a daily basis a fraction of the fourth month contract is sold and an equal notional amount of the seventh month contract is bought until the next settlement date, at which the index roll is complete and the fourth month EUREX VSTOXX futures contract is settled. On the EUREX VSTOXX futures settlement date, all of the weight is allocated to the fifth, sixth and seventh month futures contract. At this point, the remaining maturity of the fifth month contract is four months, therefore it becomes the new fourth month contract, and the index is gradually rolled into a new futures contract with a seven month maturity. During the roll period, the weight allocated to the fifth and sixth month futures contracts are not being changed.
The VSTOXX Mid-Term Futures Index is available in excess and total return versions. In the total return version of the index, the investment into the futures contracts is fully collateralized by a daily investment into the EONIA market (Euro Over Night Index Average). The interest earned from this collateralization is re-invested into the portfolio on a daily basis.
The VSTOXX Mid-Term Futures Index is part of the STOXX Strategy Index family. Further information on the STOXX Strategy Indices is available at www.stoxx.com.
