S&P Dow Jones Indices (S&P DJI) has launched the S&P 500 VEQTOR Switch Index, which seeks to simulate a dynamic portfolio that allocates between equity and the CBOE Volatility Index (VIX Index).
Today’s launch expands S&P Dow Jones Indices family of asset allocation indices that utilizes the VIX as a signal.
The allocation to the equity component of the S&P 500 VEQTOR Switch Index is dynamically adjusted to gain exposure to the S&P 500 with a target volatility of 10%. The remainder of the Index is allocated to the S&P 500 VIX Futures Long/Short Switch Index which allocates between cash and one-month VIX futures with the aim of capturing:
1. VIX futures roll yield and volatility drops (“short”) when volatility declines, and
2. VIX futures upside when volatility spikes (“long”)
The S&P 500 VIX Futures Long/Short Switch Index monitors the curvature of the VIX futures term structure and allocates to cash and VIX futures, which could be either a long or a short position in the one-month S&P 500 VIX futures contracts.
“The S&P 500 VEQTOR Switch Index provides the potential benefits of using the VIX as an ‘intelligent’ hedge for the S&P 500,” says Vinit Srivastava, Senior Director, Index Strategy, S&P Dow Jones Indices. “The Index has an innovative mechanism that dynamically allocates between the S&P 500 and the VIX Futures Long/Short Switch Index.”
