Barclays to reverse split VIX ETN

VXX shareholders will receive 1 share for every 4 held

By InvestorPlace Oct 29, 2010 1:57PM


Exchange traded funds and exchange traded notes seem to be in the news everyday, and today is no different.

Barclays Bank is planning a 1-for-4 reverse share split of its iPath S&P 500 VIX Short Term Futures ETN (VXX). The reverse split is scheduled for Nov. 9, 2010.

The reverse split means shareholders as of the Nov. 8 record date will receive one share of every four existing shares in the exchange-traded notes.

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The VIX is a gauge that aims to reflect market expectations based upon the movement of S&P 500 index options. During severe market declines, investor fear usually lifts options prices along with the VIX. When the market rises, investor fear subsides, which typically causes the VIX to fall.

The VIX currently trades around 21.25, not far from its 52-week low of 12.23.

Falling volatility and contango has put severe downward pressure on VXX’s share price. In this instance, contango happens when future VIX contracts are more expensive than spot prices. As a result, the notes’ performance suffers as it replaces expiring contracts with higher priced contracts.  

VXX will retain the same ticker symbol but a new CUSIP number will be assigned.

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VXX offers exposure to a daily rolling long position in the first and second month VIX futures contracts and aims to reflect the implied volatility of the S&P 500 Index at various points along the volatility forward curve. The index futures roll continuously throughout each month from the first month VIX futures contract into the second month VIX futures contract.

Barclays also manages the iPath S&P 500 VIX Mid-Term Futures ETN (VXZ).

ETNs are debt instruments that pay a return linked to the performance of a single security, currency or index. Unlike traditional exchange traded fund products they carry credit risk of the issuing financial institution.

New Metals ETF

In other exchange traded fund news, Van Eck Global introduced the Market Vectors Rare Earth/Strategic Metals ETF (REMX) today. The New York investment firm describes REMX as a pure play on miners, refiners, recyclers and producers.

REMX is a global ETF, meaning it takes positions in both U.S. and non-U.S. publicly traded companies. The fund’s underlying index contains 24 stocks and uses a modified market capitalization weighting strategy.

Stocks from Australia (23.90%), Canada (19.81%) and the U.S. (18.77%) are the largest countries represented. The fund’s annual net expense ratio is 0.57%.  

For more ETF research and ETF information, follow these links.

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