February's stock market turbulence unearthed risk inherent in so-called volatility funds, which are tied to how stable or unstable the markets are. For example, although Credit Suisse's VelocityShares Daily Inverse VIX Exchange Traded Note (NASDAQ:XIV)'s 90%+ loss in value—which we wrote about on February 8—may headline volatility products' risk and the VIX prospectus warning, "The long term expected value of your ETNs is zero" (Credit Suisse announced it will liquidate VIX on February 21), many other volatility funds similarly performed poorly, and not just over the past few weeks.
Many of these volatility exchange-traded products (ETPs) have lost a significant share of their value over the past year; of the 27 exchange-traded products in Morningstar's volatility category 17 of 20 funds that have been in business for at least one year posted a loss over the past 12 months. They are:
Name |
1-Yr Return % |
VelocityShares Daily Inverse VIX ST ETN (XIV) |
-90.94 |
REX VolMAXX™ Short VIX Wkly FutsStratETF (VMIN) |
-82.51 |
VelocityShares Daily 2x VIX ST ETN (TVIX) |
-81.77 |
ProShares Short VIX Short-Term Futures (SVXY) |
-80.37 |
ProShares Ultra VIX Short-Term Futures (UVXY) |
-79.87 |
VelocityShares VIX Shrt Volatil Hdg ETN (XIVH) |
-73.21 |
VelocityShares Daily 2x VIX MT ETN (TVIZ) |
-55.29 |
VelocityShares VIX Tail Risk ETN (BSWN) |
-55 |
VelocityShares VIX Variable L/S ETN (LSVX) |
-53.46 |
Rex VolMaxx™ Lng VIX Wkly Futs Strat ETF (VMAX) |
-47.68 |
ProShares VIX Short-Term Futures (VIXY) |
-40.31 |
VelocityShares VIX ST ETN (VIIX) |
-39.97 |
iPath® S&P 500 VIX ST Futures™ ETN (VXX) |
-39.79 |
VelocityShares VIX MT ETN (VIIZ) |
-29.39 |
ProShares VIX Mid-Term Futures (VIXM) |
-29.07 |
iPath® S&P 500 VIX MT Futures™ ETN (VXZ) |
-28.78 |
iPath® S&P 500 Dynamic VIX ETN (XVZ) |
-25.56 |
The VelocityShares 1x Long VSTOXX Fits ETN (EVIX) is another losing fund, but EVIX is less than one year old. Accordingly, EVIX's six month return is -28.53%.
Given XIV and similar volatility products' prospectus-published warnings, full-service brokerage firms that sold these products and failed to adequately disclose risks, such as "the long term expected value of your ETNs is zero" may be liable for damages, such as the loss in value an investor experienced after unsuitably holding a volatility fund over "the long term."
For example, FINRA in late 2017 ordered Wells Fargo to pay $3.4 million to investors that purportedly received unsuitable recommendations from firm representatives who may not have understood the risks of these products to customers looking to hold the products for the aforementioned "long term."
If you have invested with a full-service brokerage or registered representative whose has unsuitably recommended investment in a risky volatility product that has proven harmful to your financial interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.