Horizons ETFs to terminate 2 volatility-focused funds

HorizonsETFs Management (Canada) is terminating two VIX ETFs because of increased volatility.

Direct subscriptions for the BetaPro S&P 500 VIX Short-Term Futures 2× Daily Bull ETF (HVU) and the BetaPro S&P 500 VIX Short-Term Futures Daily Inverse ETF (HVI) will no longer be accepted, and the ETFs will terminate at the close of business on June 11, Horizons said in a release.

“Since early February of this year, the pricing in S&P 500 VIX futures has been very irrational and erratic. This volatility, in the case of HVI and HVU, has, in the manager’s view, significantly changed the risk profile of these two ETFs to be far too high for Canadian investors,” the release said.

When markets dropped in early February and turned volatile, Horizons halted trading on HVI. It suspended new subscriptions of fund units on Feb. 27, because the manager didn’t expect HVI to meet its stated investment objective after the close of trading that day.

On March 14, Horizons renewed subscriptions for HVI, saying its performance since Feb. 27 had corresponded to approximately one-half times the inverse (opposite) of the daily performance of the S&P 500 VIX Short-Term Futures Index, and the company expected that to continue.

On Wednesday, Horizons said in the release that ETFs “that are expected to generate returns that are greater than, or inverse to, one times the daily price return of volatility futures specifically no longer offer an acceptable risk/reward trade-off for Canadian investors.”

The last date to place redemption requests with the manager is expected to be June 5, and the ETFs are expected to be de-listed from the Toronto Stock Exchange at the close of business on or about June 6.

Units still held by investors will be subject to a mandatory redemption as of the termination date. Unitholders as at the termination date will receive net proceeds from the liquidation of assets, less liabilities and expenses incurred from the dissolution of the ETFs, on a pro-rata basis.

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All other BetaPro-branded ETFs from Horizons have a “reasonable and transparent” amount of daily market risk, says the release. This includes BetaPro S&P 500 VIX Short-Term Futures ETF (HUV), which offers single-long (one times) daily exposure to the same underlying index as HVU and HVI. HUV will continue to be listed on the Toronto Stock Exchange.

Also read:

Be victorious over volatility

Is it time to nix the VIX?

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.