When looking at the overall exchange traded fund universe, investors may be surprised that an inverse CBOE Volatility Index-related product has led the charge.

The bearish or inverse VIX ETF, the REX VolMAXX Inverse VIX Weekly Futures Strategy ETF (BATS: VMIN), has achieved a total return of 72.2% year-to-date, according to Morningstar.

Many would not have expected VMIN to have generated such a high return, especially given this year’s lack of large volatile turns as the VIX has only risen up to about the 16.0 level during its most volatile and remains relatively subdued with its current 10.2 reading. The VIX even recently touched a 23-year low.

However, the reason VMIN has been doing so well may be attributed to a quirk in the way the ETF structure works.

With the popularity of inverse VIX ETFs grows, many think of volatility funds as having a significant decay in price. While this is generally true of long volatility funds, VMIN takes the other side of the trade, benefiting from such decay as it accrues in exchange for bearing the risks associated with sudden spikes in volatility.

VMIN provides the inverse exposure to VIX moves. The VolMAXX fund has a target weighted average time to expiration of less than 30 days by accessing VIX weekly futures, unlike other exchange traded product options that utilize monthly contracts.

Potential investors should be aware that these VIX exchange traded products track the futures market and not the spot price of the VIX. Since the ETPs track the futures market, investors will be exposed to issues like contango.

The ETPs that track something like the S&P 500 VIX Short Term Futures Index roll contracts every day to gain a notional exposure that is always 30 days out. However, since the VIX market is perpetually in a state of contango, where later dated contracts are costlier than near term contracts, the index is selling low and buying high each time it rolls over its contract, which has contributed to the long-term underperformance of VIX futures index-based ETPs.

However, the bearish or short VIX ETPs, like VMIN, have capitalized on the negative effects of contango in the futures market over extended periods. So despite a relatively idle VIX, VMIN has surged on the negative roll in an ongoing contangoed futures market.

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

CORRECTION: VMIN YTD performance updated.

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