JPMorgan Launches New Product For Investors Betting On Falling Volatility (CORRECTED)

Editor’s Note: The headline has been corrected to clarify VYLD’s description.

JP Morgan Chase & Co. JPM has launched the Inverse VIX Short-Term Futures ETN VYLD, which is set to benefit if market volatility decreases. This was a bold (and somewhat contrarian) move, given that most market participants are expecting volatility to either continue or increase in the coming months.

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Bloomberg reported that VYLD follows an index shorting futures on the CBOE Volatility Index (VIX). It returns 1% for each point VIX futures decline, before expenses. The ETN has an expense ratio of 85 basis points and short front- and second-month VIX futures contracts.

Volatility-linked ETNs have a history of abrupt failures. In 2018, the VelocityShares Daily Inverse VIX Short-Term ETN plummeted more than 90% in one session, according to Bloomberg. Barclays also experienced problems in 2022 as a result of mistakes with volatility-linked notes.

“This is a singular event,” Strategas senior ETF strategist Todd Sohn told Bloomberg. “Shorting volatility — in a structure that doesn’t really get much scrutiny anymore: an ETN.”

JPMorgan cites heightened market interest in volatility products. Brandon Igyarto, head of Americas structured investment distributor marketing at JPMorgan, said VYLD would have provided the same returns as other short VIX products but with lower drawdowns in sudden corrections.

Part Of A Larger ETF Strategy

JPMorgan oversees more than $190 billion in ETF assets, including the JPMorgan Ultra-Short Income ETF JPST, which holds more than $31 billion. VYLD is its newest addition, providing investors with a means to wager on lower volatility—albeit with great risk.