Volatility ETFs are popular trading products. These products are linked to volatility futures. They own or short futures based on the CBOE Volatility Index (VIX). The VIX index portrays the price volatility embedded in the option prices of the S&P 500 Index for the next 30 days.
Investors need to understand that these funds track the futures on the VIX, not VIX itself. Because of the nature of the VIX futures markets, the rolling cost of futures may be detrimental to performance results. Thus, these products may lose money over the long term. Investors need to approach these products with care.
With 19 ETFs traded in the U.S. markets, Volatility ETFs gather total assets under management of $4.23B. The average expense ratio is 1.33%. Volatility ETFs can be found in the following asset classes:
The largest Volatility ETF is the VelocityShares Daily Inverse VIX Short-Term ETN XIV with $1.17B in assets. In the last trailing year, the best performing Volatility ETF was the VMIN at 168.08%. The most-recent ETF launched in the Volatility space was the VelocityShares 1X Long VSTOXX Futures ETN EVIX in 05/02/17.