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First Trust announces plans to launch CBOE/VIX Tail Hedge index fund
By Toni Weeks
San Diego, Oct. 17 - First Trust Advisors LP announced its plans to launch the First Trust CBOE VIX Tail Hedge index fund, according to a form N-1A filed with the Securities and Exchange Commission.
The fund seeks investment results corresponding to the price and yield of the CBOE S&P VIX Tail Hedge index and will normally invest at least 90% of its net assets in common stocks included in the index.
The portfolio will consist primarily of equity securities designed to track the performance of the S&P 500 with a variable option overlay consisting of one-month call options on the VIX index but may, at times, consist entirely of S&P 500 stocks. The VIX index is a measure of estimated near-term future volatility based on the weighted average of the implied volatilities of near-term put and call options on the S&P 500.
In the context used by the index provider, tail hedging is the practice of trying to hedge the portfolio from extreme market moves that are the result of random, unexpected and unpredictable events, which often result in rapid increases in market volatility. The fund will use a tail-hedging strategy in order to profit from the sudden rise in implied volatility, and the gains from the "tail hedge" will theoretically offset some of the losses occurred in the portfolio due to the unexpected events.
The fund may sell covered call options, which enable the purchases to elect to receive a security at a predetermined price and time.
The investment adviser of the fund will be First Trust Advisors LP. The fund's portfolio will be managed by First Trust's Daniel J. Lindquist, Robert F. Carey, Jon C. Erickson, David G. McGarel, Roger F. Testin, Stan Ueland, John Gambla and Rob A. Guttschow.
First Trust is based in Wheaton, Ill.
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