From EconompicData, September 6:
One of my favorite Twitter follows @LadyFOHF shared
the below scatter chart from Morgan Stanley that attempted to map areas
of the global market that were both cheap (valuation ranks at the lower
end of its 10-year history) and defensive (a low or negative
correlation to global equities).
One of the few trades listed as having both characteristics was the VIX Index. Let's take a look.
The VIX is Not Investable
The chart below shows the percentile rank of the VIX index over the ten
year time frame outlined in the Morgan Stanley chart. The VIX Index was
indeed near it's all time low, ranking in the lowest 6th percentile of
its ten year history at Friday's close (9/2/16) when the VIX closed at
11.98.
But an investor cannot invest in the VIX Index. Rather an investor can
buy or sell the consensus view of where the VIX will be, most easily
through VIX futures or ETPs (for more details on the VIX term structure,
take a look at a past post here).
VIX Futures have Diverged
The below looks at the rank of historical 2nd month VIX futures contract
prices (i.e. where consensus views the VIX as being when the 2nd
closest VIX future contract matures - which currently makes up the
largest holding of VIX ETPs) and we see a different picture....MORE
