(Bloomberg) -- ETFs that place bets on severe stock-market swings are coming back into vogue — delivering big gains and losses during this week’s rapid downturn and recovery.
The funds, which are linked to the Chicago Board Options Exchange Volatility Index, had cut a relatively low profile this year as traders pushed stock prices higher, wagering the US economy was poised to keep powering ahead. But as recession fears and Big Tech gyrations complicate the outlook, investors have started piling back in — either to wager on more turbulence or that the latest flare-up will be short lived.
The ProShares Short VIX Short-Term Futures ETF (SVXY) — which effectively bets on a return of stock-market calm — drew in $233 million as equities tumbled on Monday, the biggest influx since a tumultuous 2018 period known as Volmageddon, data compiled by Bloomberg show. Its shares tumbled over 21% during the selloff, only to bounce back 10% by Tuesday afternoon. The rival 1x Short VIX Futures ETF (ticker SVIX) tumbled 39% during the rout the most since its 2022 inception and surged 15% on Tuesday.
Those on the other side of the trade fared far better. The 2x Long VIX Futures ETF (UVIX), which looks to double the performance of a long-VIX index, saw record trading volume Monday as it surged 84%, the biggest gain since it was started in 2022. The ProShares Ultra VIX Short-Term Futures ETF (UVXY), which jumped 58%, saw its second-highest trading volume ever.
The rising interest in the funds reflects the growing anxiety about whether the stock market is headed into another sustained downturn or on a brief bull-market dip.
That uncertainty has whiplashed markets around the globe, with the S&P 500 Index losing 3% on Monday in what was its worst day in nearly two years and Japan’s Nikkei seeing its deepest one-day slide since 1987. Both bounced back on Tuesday.
The severity of the swings in the VIX-related funds shows the risk of piling into bets prone to big reversals, which by definition are virtually impossible to predict. Some funds that were set up to weather market meltdowns, for example, wound up being hammered by severe losses as stock prices just kept marching higher, causing one to close down earlier this year.
“Volatility ETPs are difficult to chase and are one of the prime categories that burn through investor cash, historically,” said Todd Sohn, an ETF strategist at Strategas. “Buyer beware should be in large red print on these product labels.”
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