Update: I do not believe XXV is a good way to short VXX, or volatility in general. It has very little upside remaining (maximum value will be $40/share), see this post for more details.
XXV Prospectus: XXV: Barclays Inverse VolatilityETNs
Usually getting the prospectus for a new ETF or ETN takes a Google search and a couple minutes of browsing. The prospectus for Barclays’ new XXV inverse volatility ETN proved to be a much more elusive search—it didn’t show up in the top 20 hits. Reading through the fine print of the XXV Fact Sheet provided this pointer for web access:
Before you invest, you should read the prospectus, prospectus supplement, pricing supplement and other documents Barclays Bank PLC has filed with the SEC for more complete information about Barclays Bank PLC and this offering. You may get these documents for free by visiting EDGAR on the SEC website at www.sec.gov.
Even finding the prospectus on EDGAR proved to be frustrating. My search in Edgar’s company search for “Barclays Bank PLC” resulted in a lot of hits, but 20 minutes of clicking did not yield anything XXV related. I finally did an EDGAR text advanced search with XXV as the text and Barclays Bank PLC as the company to find the XXV prospectus and a few other related documents.
I have only started to dig through this 66 page document, but so far the most interesting aspect of XXV is its “Automatic Termination Event”—which liquidates your position if the intraday indicative note drops to $10 or less. I don’t know of any other ETN or ETF that includes a built in stop loss order like this. XXV is effectively a short of VXX, and as investment writers are fond of reminding us, a short position can theoretically result in “infinite” losses. The people at Barclays have decided to block the infinite losses scenario by limiting an investor’s potential maximum loss to be whatever they invested minus around $10 per share.
Somewhat sobering, the prospectus finishes the section on Automatic Termination Event with: “If the historical frequency of precipitous increases in market volatility persists, it is highly likely that an automatic termination event will occur”.
This is probably not an investment that you want to buy and hold…
Prospectuses for a couple of other volatility based products:
XVIX E-Tracks Long-Short prospectus
- Barclays’ XXV —the first ETN with nowhere to go?
- XXV: Dancing the contango—without getting mugged
- VXX prospectus
- XXV behavior—it’s a pretty good VXX short
- Betting that fear will fade
Monday, January 10th, 2011 | Vance Harwood