Inverse volatility ETFs are linked to volatility futures based on the Chicago Board Options Exchange Market Volatility Index (VIX). The VIX was introduced as a tool to gauge the severity of stock market swings, and it portrays the price volatility embedded in the option prices of the S&P 500 Index looking out the next 30 days. It has fittingly been dubbed the "fear index." Inverse volatility ETFs give investors the ability to own or short futures based on how the VIX will trade. Since the investor is making a bet on future volatility, which is an unknown, inverse volatility ETFs can be particularly risky.
2019 has been particularly non-volatile, albeit a few wild trading sessions. As a result, most inverse volatility ETFs have well underperformed the market and suffered steep losses.
Here are the top performing inverse volatility ETFs in 2019, as of August 28th. We only include those ETFs with assets under management of at least $200 million.
Inverse volatility ETFs are bets on VIX options, not the VIX itself. In periods of low volatility, they vastly underperform the broader market.
- Issuer: Barclays Bank, PLC.
- Expense Ratio: 0.89%
- Assets Under Management: $743.1 million
- 2019 Return YTD: -41%
- Issuer: ProShares
- Expense Ratio: 0.87%
- Assets Under Management: $249.6 million
- 2019 Return YTD: -38%
- Issuer: Credit Suisse
- Expense Ratio: 1.65%
- Assets Under Management: $1.16 billion
- 2019 Return YTD: -71%
Inverse volatility ETFs are a good example of high risk, high reward securities. They are not recommended for long term investors looking for consistent and reliable growth. They are used mostly by institutional investors and skilled traders to hedge other short term positions.