“The category gained $1.5 billion in February. Total assets in the category grew by 42% last month and now stand at $3.6 billion. Inflows were so strong that VelocityShares Daily 2X VIX Short-Term ETN (TVIX) has suspended new creations,” says Paul Justice, director of North American ETF Research at Morningstar. [TVIX Suspends Issuance]
“What people are missing is that the futures curve for volatility is telling us that, unless the apocalypse really is coming, it will be nearly impossible to make money with these products today. The futures curve is in such an ugly state of contango that, if the volatility index simply stays where it is today, investors can expect to lose nearly 10% every single month,” Justice wrote in the March edition of Morningstar’s ETF Investor newsletter.
“Perhaps this market truly is dominated by speculators betting that volatility will spike soon. But I doubt it. I believe investors are clinging to the experience of 2008 and feel an insatiable urge to protect themselves by using these complex products,” he added.
iPath S&P 500 VIX Short Term Futures ETN