Source, a specialist provider of exchange traded products for European investors, has launched Europe’s first volatility-linked ETF to track the S&P 500 VIX Short-Term Futures Total Return index. Source now operates 77 ETFs spanning equities sectors and commodities, including physical gold, which have raised over $6 billion in assets.

 
Until now, European investors have been limited to trading individual VIX futures contracts or gaining exposure via structured notes. The new S&P 500 Vix Futures Source ETF is a UCITS III compliant fund, is listed on the London Stock Exchange, trades in the dollar and has a 60 basis point annual management fee.

 
“Everybody is looking for indicators of where risk appetite is at any given time,” said Michael John Lytle, director of marketing with Source, discussing the launch of the ETF. “It is quite a progression for the market place.”

 
Renewed spikes in market volatility around the Eurozone crisis have accentuated risk aversion and underlined the need to manage exposure to implied volatility. Source has created the ETF with assistance from Nomura which is a founding partner in the venture along with BoA Merrill Lynch, Goldman Sachs, JP Morgan and Morgan Stanley.

 
Source is aiming to develop the market in Europe for buy side investors to use ETFs. Hedge funds in the US, which account for up to half of all equity market trading, are big users of ETFs to get liquid exposure to different equities sectors. In Europe, the use of ETFs is still in its infancy and only a handful of hedge funds are using the instruments, but that is expected to begin to change.  

 
Source is seeking to bring this about by pushing for greater efficiency and transparency in ETF provision. The market footprint of its authorised broker participants is noteworthy for providing high trading liquidity. It is expected that all these factors are important to help the European market grow ETF trading volumes and make the contracts of more use to hedge fund managers.