Volatility ETFs Higher On Trump's Threats, Weak Data

After capping the best month since June, Wall Street’s rally fizzled out to start December with fresh trade tensions and downbeat U.S. data. This is especially true as President Donald Trump tweeted that he would restore tariffs on steel and aluminum imports from Brazil and Argentina in retaliation to currency devaluations.

The Trump administration also proposed tariffs of up to 100% on $2.4 billion worth of French products, including sparkling wine, cheese, and other goods, to penalize France for a new digital services tax that has hit U.S. technology companies.

The Institute for Supply Management data showed that the U.S. manufacturing sector contracted for a fourth straight month in November as new factory orders dropped to their lowest level since 2012. Additionally, U.S. construction spending unexpectedly fell in October as investment in private projects tumbled to its lowest in three years. The weak data has rekindled worries about a slowing economy.

As such, the volatility level represented by the CBOE Volatility Index (VIX) spiked 18.1% on the first day of December, suggesting that the market worries have started to set in. This fear gauge tends to outperform when markets are declining or fear-levels pertaining to the future are high.

Investors could definitely benefit from this trend. While they can’t directly buy this index, there are several ETF/ETN options available in the market that can provide some exposure to volatility. These products have proven to be short-time winners in turbulent times. Below, we have highlighted short-term volatility products that will steadily move higher as long as trade concerns linger:

Simple Volatility ETFs

iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX - Free Report)

This is a popular option providing exposure to volatility that sees a truly impressive average volume of about 31.6 million shares a day. The note has amassed $909.1 million in AUM and charges 89 basis points (bps) in fees per year. The ETN focuses on the S&P 500 VIX Short-Term Futures Index, which reflects implied volatility in the S&P 500 Index at various points along the volatility forward curve. It provides investors with exposure to a daily rolling long position in the first and second months of VIX futures contracts. The product gained 5.2% on the first day of December.

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