Investors fearful of a market pullback and desperate for a hedge to lock in gains have pumped more than $900 million into a volatility-linked exchange traded product in the third quarter even though the fund has plunged in value as stocks rally.

The iPath S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) is down 43% for the quarter on a falling CBOE Volatility Index and “contango” in the VIX futures market. The exchange traded note doesn’t replicate the spot VIX. [‘Bull Market in Fear’ — Investors Pile Into VIX ETFs]

Investors have added $913.5 million of new money to VXX in the third quarter, according to ConvergEx Group.

The volatility-linked ETN is trading near all-time lows. The CBOE Volatility Index and all the VIX futures closed lower yesterday on the last trading day before September expiration, optionMONSTER reports.

“With a lack of market-moving economic data, the market has just treaded water near multiyear highs, while the VIX volatility index stays plastered against 52-week lows,” writes David Williamson for The Motley Fool.

VXX, which is designed to track VIX futures contracts, is down 75% year to date, according to Morningstar.

“Volatility futures have a large negative roll yield in steady markets, so the insurance provided by this fund can be very costly even if volatility remains constant,” the investment research firm says in a report on VXX.

The ETN has a market capitalization of $1.7 billion, according to issuer Barclays.

Two leveraged volatility products, ProShares Ultra VIX Short Term Futures ETF (NYSEArca: UVXY) and VelocityShares Daily 2X VIX Short Term ETN (NYSEArca: TVIX), have seen inflows of $180.4 million and $90.6 million, respectively, in the third quarter, according to IndexUniverse data.

iPath S&P 500 VIX Short Term Futures

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