Best (and only) reverse VIX ETF in the first quarter of 2022

The reverse VIX exchange-traded fund (ETF) provides investors with a direct way to bet on the future direction of market volatility. The Cboe Volatility Index (VIX), also known as the “fear indicator” of the market, is the most widely used volatility benchmark. Reverse VIX ETF uses complex financial strategies to move in the opposite direction of VIX. Increasing economic uncertainty will cause investor sentiment to turn negative, which in turn will lead to increased volatility. When the volatility rises, the price of the reverse VIX ETF will fall. But when uncertainty subsides and optimism returns, volatility decreases, which may lead to an increase in the value of the reverse VIX ETF.

Key points

  • The best (and only) reverse VIX exchange-traded fund (ETF) is SVXY.
  • The volatility index has risen in the past year, mainly due to the spread of new variants of COVID-19 in the past week.
  • SVXY uses futures to provide short exposure to VIX.

The inverse VIX ETF is mainly used by experienced traders as part of a broader portfolio involving other high-tech transactions. It should be noted that these are highly complex tools with unique risks. They are suitable for investors with very short time horizons and should not be used as part of a buy and hold strategy. Investors should carefully consider their own risk tolerance and risk tolerance before considering whether to buy or sell such securities.

Compared to non-inverted ETFs, inverted ETFs may be riskier investments because they only aim to achieve the reverse of their benchmark one-day return. You should not expect them to do this in terms of long-term returns. For example, an inverse ETF may return 1% in a day when its benchmark falls by -1%, but you should not expect it to return 10% in a year when the benchmark falls by -10%. For more details, please refer to this U.S. Securities and Exchange Commission (SEC) alert.

There is only one inverse volatility ETF traded in the United States: ProShares Short VIX short-term futures ETF (SVXY). The volatility index has risen by 34.7% in the past year, most of which occurred in the past week due to the spread of a new variant of COVID-19 called Omicron. SVXY has no benchmark because it focuses on investment results every day and is not intended to be held for a long time. But in terms of the broader stock market, as of November 26, 2021, the Standard & Poor’s 500 Index was up 28.4% over the same period. Let’s take a closer look at SVXY below. All figures below are as of November 26, 2021.

Leveraged ETFs may be riskier investments than unlevered ETFs because they respond to daily changes in the underlying securities they represent, and losses may be magnified during adverse price changes. In addition, leveraged ETFs are designed to achieve a multiplier of their one-day returns, but you should not expect them to achieve long-term returns. For example, a 2× ETF may return 2% in a day when its benchmark rises by 1%, but you should not expect it to return 20% in a year when its benchmark rises by 10%. For more details, please refer to this SEC alert.

  • Performance over one year: 32.6%
  • Expense rate: 1.38%
  • Annual dividend yield: Not applicable
  • 3-month average daily volume: 3,262,434
  • Assets under management: US$356.7 million
  • Date of establishment: October 3, 2011
  • Publisher: ProShares

The structure of SVXY is a commodity pool, which is a private investment that combines investors’ contributions to commodity futures and options trading. Part of the complexity of inverse volatility investing is that you cannot directly buy or sell VIX. On the contrary, the reverse VIX ETF must short VIX indirectly. In the case of SVXY, this is done by shorting the VIX futures contract. In doing so, the fund manager’s goal is to achieve a daily return equal to -0.5 times the daily performance of the S&P 500 VIX short-term futures index before fees and expenses are deducted. If the index rises by a given amount on a certain day, then SVXY is expected to fall by half of that amount. If the index falls on that day, then SVXY should rise by half of the index fall. The fund maintains a daily reset function, resulting in compound returns when held during multiple holding periods. Therefore, it is a short-term trading tool used by sophisticated investors with high risk tolerance, rather than as part of a long-term buy and hold strategy.

The comments, opinions and analysis expressed here are for reference only and should not be regarded as personal investment advice or advice on investing in any securities or adopting any investment strategy. Although we believe that the information provided here is reliable, we do not guarantee its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Due to the rapidly changing market and economic conditions, all comments, opinions and analyses contained in our content are presented on the date of publication and may change without notice. This material is not intended to provide a complete analysis of every important fact about any country, region, market, industry, investment or strategy.


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