Tabula Investment Management Limited (“Tabula”) today opened London Stock Exchange markets to mark the launch of the Tabula J.P. Morgan Global Credit Volatility Premium Index UCITS ETF (Bloomberg ticker: TVOL LN).

Tabula’s ETF is the first to deliver access to credit volatility risk premia and does so by replicating the returns of the J.P. Morgan Global Credit Volatility Premium Index. The Index offers exposure to the volatility premium embedded in index options on the iTraxx Crossover (75 European names) and CDX HY (100 North American names).

Historically, the CDS index options market tends to predict volatility higher than that realised in these indices. Strong demand to buy CDS index options from credit investors has historically outpaced the growth and diversification of option sellers who face high barriers to entry in trading OTC. As a result, the premium in CDS index options tends to exceed that experienced in equity volatility.

The Index reflects the return from selling options on the iTraxx Crossover and CDX HY while hedging out the exposure to credit spreads on a daily basis. The ETF makes the otherwise difficult to access volatility risk premium in CDS index options available to investors in a liquid, passive instrument. It replicates the Index via a total return swap while investing residual cash in short-dated government bonds.

Michael John Lytle, CEO of Tabula, commented: “Investors are very keen to find new sources of return that are structural and have limited correlation to other market index investments. We are very glad to be able to work with J.P. Morgan on harnessing this risk premium and delivering it to our clients.”

Danny White, Head of Credit Index Structuring at J.P. Morgan said: “Investors are seeking easier ways of accessing the volatility premium available in CDS index options. While it’s a long established market, barriers to entry have meant that the pricing of these options has historically been inefficient relative to options in other asset classes. Today’s launch should allow investors without significant execution and operational infrastructure access to this type of strategy.

Gavan Nolan, Director of Fixed Income Pricing at IHS Markit said: “As a leading provider of CDS pricing data with historical expertise across financial markets, we are pleased to extend the reach of our best-in-class service to support the launch of this innovative ETF. This segment of the credit derivative market is growing rapidly, and our multi-source, independent pricing for CDS index options will help ensure the transparency of the Index’s performance.”

The Tabula J.P. Morgan Global Credit Volatility Premium Index UCITS ETF is the latest addition to the range of fixed income ETFs offered by Tabula and the first in alternative risk premia. Tabula is an asset manager focused on passive fixed income. It is based in London and offers Irish domiciled UCITS funds to European investors, mainly in the form of ETFs. Tabula recognises that the trend toward passive investing, which has transformed equity investing in the past two decades, has only just begun in fixed income.