Barclays Capital has launched a fund offering professional investors exposure to the implied volatility of the European equity market. The Barclays Euro Mid Term Volatility Fund - a Luxembourg-based UCITS III vehicle - utilises a transparent futures-based strategy previously unavailable in fund format.

The strategy references a futures index based on the VSTOXX, the benchmark index measuring the implied (i.e. expected) volatility of the EuroSTOXX 50. The reference index – the VSTOXX Mid Term Futures Index – replicates a continuously rolling position in VSTOXX futures, targeting a constant five-month forward exposure. Historically the VSTOXX Index has displayed a negative correlation with equity markets, allowing investors to take a defensive position against falling markets.

Investors in the fund pay an annual portfolio replication cost of 0.89 per cent, an investment management fee of 0.20 per cent of the net asset value, along with a fixed fee of 0.20 per cent p.a. There are no management or execution costs embedded within the index.

“We expect demand for volatility investments to increase as they can provide investors with a low-cost, transparent means of countering sharp draw downs, while providing a valuable tool for diversification,” said Nathan Bance, director in UK investor solutions at Barclays Capital.