S&P launches new index that allocates between equity, volatility, cash

By Devika Patel

Knoxville, Tenn., Nov. 18 - Standard & Poor's said it created the S&P 500 Dynamic Veqtor index, which allocates between equity, volatility and cash to provide broad equity market exposure with an implied volatility hedge.

The index is comprised of an equity component, as represented by the S&P 500; a volatility component, as represented by the S&P 500 Short-Term VIX Futures index; and a cash component, as represented by overnight Libor.

The index allocates between equity and volatility based on the combination of realized and implied volatility trend decision variables, and these allocations are evaluated on a daily basis. A stop-loss feature is also provided to investors to further enhance equity and volatility investing.

"Implied equity volatility typically has a strong negative correlation to equity market returns, and is considered a useful tool to hedge against the potential downside risk of the broad equity market," director of strategy indexes Liz Taxin said in a press release.

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