Are VIX ETFs Understating Market Risks? | ETF Trends

Exchange traded products designed to mimic futures contracts based on the CBOE Volatility Index pulled back sharply on Tuesday following a move higher earlier this month.

The VIX, Wall Street’s “fear index,” fell below its long-term average of 20 on Tuesday ahead of a key confidence vote in Greece and the Federal Reserve meeting.

Exchange traded funds and notes that follow VIX futures weakened as well. VelocityShares Daily 2X VIX Short-Term ETN (NYSEArca: TVIX) fell 9%.

However, one analyst says that digging deeper into options markets and looking at implied volatility in some sector ETFs shows market fear and risk may be higher than the VIX currently suggests. [VIX ETFs Soar]

Nicholas Colas, chief market strategist at ConvergEx, said there has been a “dramatic” pickup in implied volatility in high-yield bonds, healthcare, investment-grade bonds, financials and consumer discretionary stocks.

Over the past month, the VIX “may not have been much on the move but there are plenty of other asset classes and some industry sectors where the fear factor is clearly on the rise,” he wrote in a June 17 note.