For much of 2012, the CBOE Volatility Index, or VIX, has reflected greater complacency in the markets, fueling the rapid growth in inverse VIX related exchange traded funds. But the government’s impasse over the so-called fiscal cliff is stirring up the pot and the funds took a hit last week as the VIX spiked.

The top performing funds of the year are the Velocity Shares Daily Inverse VIX Short-Term ETN (NYSEArca: XIV) and the ProShares Short VIX Short-Term Futures ETF (NYSEArca: SVXY), which were up more than 200% year to date until last week. Both funds hit lifetime highs this month. [CBOE Volatility Index]

These exchange traded products are designed to move in the inverse, or opposite, direction of VIX futures contracts. The VIX is known as Wall Street’s fear gauge. XIV and SVXY let investors bet against volatility. Brendan Conway at Barron’s calls XIV a “kind of backdoor bullish bet on the stock market.” [Inverse VIX ETFs]

The inverse VIX ETFs have been gaining at the expense of the VIX index, which has dropped from close to 50 at the height of the deficit ceiling and Eurozone scares in late summer last year to about 16 recently, or near its historical averages. [VIX ETFs Show Market Complacency as Stocks Flirt with Record Highs]

However, the VIX jumped back above 20 last week on fiscal cliff worries. [Volatility ETF Trading Explodes]