The “negative roll yield” reduced VIX ETF returns by as much as 30% in a month in early 2012.

Nevertheless, investors should not be using these funds as a long-term, buy-and-hold allocation. Whaley refers to VIX ETFs as a “trading vehicle,” and investors can use still use VIX funds to hedge against short-term volatility or aggressively capitalize on uncertainty, such as in the week ahead of the government default deadline. [Inverse VIX ETFs Surge on Government Debt Band-Aid]

For more information on the CBOE Volatility Index, visit our VIX category.

Max Chen contributed to this article.

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