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Traders Fled Volatility ETFs Before Reverse Splits


Two ETFs designed to profit from spikes in market volatility made an ominous top-10 list last week: The top-10 redemptions list. Ahead of reverse splits that went to effect at the start of trading Monday, the ProShares Ultra VIX Short-Term Futures ETF (UVXY) saw a whopping $2.62 billion in redemptions last week, making it the ETF with the largest outflows.

With outflows of $2.62 billion, UVXY was well ahead of the outflows seen at the SPDR S&P 500 (SPY) , which had outflows of $2.24 billion, according to Index Universe data.

UVXY seeks to deliver daily investment results that are twice the daily performance of the S&P 500 VIX Short-Term Futures Index. The ETF was split 1-for-10 and was not the only volatility product to see massive outflows last week. The ProShares VIX Short-Term Futures ETF (VIXY) saw outflows of $921.5 million ahead of a 1-for-5 reverse split. [ProShares Plans Reverse Splits]

VIXY tracks the the S&P 500 VIX Short-Term Futures Index. It had the seventh-largest amount of outflows last week, according to Index Universe. That means VIXY’s outflows surpassed those of other under siege ETFs such as the iShares iBoxx $ High Yield Corporate Bond Fund (HYG) and the Vanguard FTSE Emerging Markets ETF (VWO) .

Last week’s redemptions in UVXY and VIXY could indicate some traders were merely waving the white flag on these products before another reverse split, something volatility ETFs and ETNs have gotten investors acquainted with over the years. However, the lower VIX coupled with a rallying stock market imperils volatility products that usually thrive in down markets. [The Death of Volatility ETFs?]

Prior to last week’s outflows, UVXY had actually seen inflows on a year-to-date basis, but the redemptions were so severe that the fund is eighth on the list of top-10 ETFs for 2013 outflows, outpacing both VWO and HYG on that basis. To this point in the second quarter, only two ETFs – the SPDR Gold Shares (GLD) and the iShares MSCI Emerging Markets Index Fund (EEM) – have seen larger outflows than UVXY.

ProShares Ultra VIX Short-Term Futures ETF

ETF Trends editorial team contributed to this report. Tom Lydon’s clients own shares of EEM and GLD.


The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.