Barclays Abandons iPath Brand With Inverse Volatility ETN (XXV, VXX, VXZ)

Barclays launched a new inverse volatility exchange-traded note yesterday (7/19/10).  Offering no explanation in the press release, Barclays decided to abandon the popular and successful iPath brand of its two existing “long” volatility products.  Instead, Barclays is using the ETN+ brand that is currently associated with several struggling products.

The new ETN is called Barclays ETN+ Inverse S&P 500 VIX Short-Term Futures ETN (NYSE:XXV).  Adding to the confusion, the XXV overview page on the BARX (the leading candidate for new brand name) website has a prominent ad for iPath, although it’s designed to look like part of the page.

(NYSE:XXV) notes are set to mature in 2020, will pay no dividends, and are linked to the inverse performance of the S&P 500 VIX Short-Term Futures Index Excess Return.  They are essentially the inverse version of iPath S&P 500 VIX Short-Term Futures ETN (NYSE:VXX) (VXX overview).

The XXV fact sheet (pdf) reminds us that these ETNs are unsecured debt securities and do not guarantee any return of principal at maturity or upon redemption.  Barclays currently has an AA- rating from S&P and Aa3 from Moody’s for “long-term, unsecured obligations.”  However, these securities are classified by Barclays as “global medium-term” notes.

The XXV pricing supplement (pdf) is 260 pages long (good luck with that).  A couple of points I was able to extract from the two-page summary include a Fee Rate of 0.89% and an early termination trigger if the intraday indicative value is less than or equal to $10 (a 50% decline from the initial $20 launch value).

Despite these obstacles, Barclays likely has a successful product in (NYSE:XXV).  This ETN will be useful for implementing various volatility strategies by itself or in conjunction with the two iPath ETNs that are long volatility (NYSE:VXX), (NYSE:VXZ).  Maybe one day all three will unite under the same brand name.

Written By Ron Rowland From Invest With An Edge

Ron Rowland is the founder of Invest With An Edge and serves as the Executive Editor. He is also editor of AllStarInvestor.com and Chief Investment Officer of Capital Cities Asset Management (www.ccam.com). Quoted widely in the financial media, Ron is the industry go-to guy for sector rotation insight and investment strategies using ETFs and mutual funds.

We have also put together some more details on the iPath S&P 500 VIX Mid-Term Futures Note (NYSE:VXZ), iPath S&P 500 VIX Short-Term Futures Note (NYSE:VXX) and the Barclays ETN+ Inverse S&P 500 VIX Short-Term Futures ETN (NYSE:XXV) below:

iPath S&P 500 VIX Short-Term Futures ETN (NYSE:VXX) Visit Our VXX Category: HERE 

The investment seeks to replicate, net of expenses, the S&P 500 VIX Short-Term Futures Total Return Index. The index offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects 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.

iPath S&P 500 VIX Mid-Term Futures ETN (NYSE:VXZ) Visit Our VXZ Category: HERE 

The investment seeks to replicate, net of expenses, the S&P 500 VIX Mid-Term Futures Total Return Index. The index offers exposure to a daily rolling long position in the fourth, fifth, sixth and seventh month VIX futures contracts and reflects 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 fourth month VIX futures contract into the seventh month VIX futures contract. 

Barclays ETN+ Inverse S&P 500 VIX Short-Term Futures ETN (NYSE:XXV)  Visit Our XXV Category: HERE 

This new ETN is linked to the inverse performance of the S&P 500® VIX Short-Term FuturesTM Index Excess Return (the “Index”). The Index is designed to reflect the returns that are potentially available through an unleveraged investment in short-term futures contracts on the CBOE Volatility Index® (the “VIX Futures”). VIX Futures reflect the implied volatility of the S&P 500® Index, which provides an indication of the pattern of stock price movement in the US equities market. This new ETN is an uncollateralized debt obligation of Barclays Bank PLC with a 10-year maturity.

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