Sucker Punch
Sometimes You Beat the Bear. Lately, the Bear Beats You.
Volatility ETFs offer insurance that has made investors anything but secure.
This article is for subscribers only.
Investors have spent at least $2.6 billion this year on funds that are supposed to protect their portfolios in a market crash. Instead, those funds, rather than insuring their assets, have lost nearly $2.8 billion, according to data from Bloomberg Intelligence.
One of the reasons often cited for the Black Monday stock market crash 30 years ago, though disputed, is the prevalence of so-called portfolio insurance, which gave investors the ultimately false hope they wouldn't lose money when the market crashed. Volatility ETFs, the oldest of which dates back to 2009, are this bull market's portfolio insurance. The funds track the VIX volatility index, which tends to move in the opposite direction of stock prices in general.