One of Canada’s largest exchange-traded fund managers is winding down two small ETFs that offered investors a way to play volatility in equity markets.
Horizons ETFs Management (Canada) Inc. announced on Tuesday it will terminate the BetaPro S&P 500 VIX Short-Term Futures 2X Daily Bull ETF, which had net assets of $25.6-million, and the BetaPro S&P 500 VIX Short-Term Daily Inverse ETF, with assets of $16.9-million
The price of both ETFs went on a roller coaster ride in the first week of February, when volatility spiked in the U.S. equity market after a year of relative stability. Both products use borrowed money to boost returns; this leverage can also mean significant losses. In February, one ETF lost 80 per cent of its value in a single day. Swings in the price of the two securities prompted Horizons ETFs management to review the suitability of the two securities for its clients.
“We have come to the conclusion that these ETFs no longer offer an acceptable risk/reward trade-off for investors,” Steve Hawkins, president and co-CEO of Horizons ETFs, said in a news release.
Since February, the pricing of S&P futures contracts that underpin the two ETFs has been “very irrational and erratic,” Mr. Hawkins said.
“Ultimately, we do not want to be offering investment products that have the potential to lose the majority of an investor’s capital in such a short period of time,” he said.
Horizons ETFs will redeem the two ETFs and expects to delist them from the Toronto Stock Exchange by June 6, with mandatory redemption after that date for any units still held by clients.
Andrew Willis