Leveraged and inverse VIX ETFs are back
ETF newcomer Volatility Shares has launched two new ETFs that go both long and short on VIX, the fear gauge.
Due to the high risks and the history of VIX ETPs exploding, the two funds required special approval from the SEC’s commissioners, which took over two years to receive.
- -1x Short VIX Futures ETF (SVIX)
- 2x Long VIX Futures ETF (UVIX)
The funds provide the inverse and double the return of two VIX futures indexes—but only for the course of a single trading day.
Both work by buying and shorting VIX futures, which trade on CBOE. They use the front and second month futures contracts and roll the positions daily.
Volatility Shares plans to make the funds safer by limiting their trading to 10% of any futures daily volume and extending rebalancing periods where need be.
SVIX charges a 1.98% fee. UVIX charges a 2.78% fee.
Bernie’s commentary – truly hilarious prospectus, SEC clearly hates this
Reading prospectuses is usually as much fun as watching grass grow. But as these funds took two years, and required special commissioner meetings, to get approval– there was always going to be something funky going on. And it didn’t disappoint.
Inserted in the investment strategy section there are two huge paragraphs in bold text about the risks of investing in VIX. Immediately below which there are three more paragraphs in all caps – which conveys screaming to the reader – where the fund manager warns about the risks of taking the fund’s backtests seriously.
It's funny because the SEC has clearly forced Volatility Shares hand. But the funniest thing was the following (forced) admission:
“VOLATILITY SHARES LLC HAS HAD LITTLE OR NO EXPERIENCE IN TRADING ACTUAL ACCOUNTS FOR ITSELF OR FOR CUSTOMERS.”
Nice! (Page 38 here if you’re interested).
I guess if there are some positives here, these two launches are still ETFs. One of the risks for VIX ETNs was that they came with counterparty risk. These two, at least, don’t have that. Also i have to give credit to Volatility Shares they obviously had to fight the SEC, but they have managed to launch their initial products despite that...