These ‘inverse’ ETFs carry special risks

Article Excerpt

Sometimes ETF investments can suffer wild, often punishing swings. Here is a brief look at some of the worst-performing funds over the past year. Their poor results highlight the risks associated with specialized ETFs. We don’t recommend them. HORIZONS BETAPRO S&P 500 SHORT TERM VIX INVERSE ETF $2.26 (Toronto symbol HVI; Market cap: $20.2 million) moves inversely to the S&P 500 VIX short-term futures index. This means that when the VIX index falls, the ETF should gain to the same degree. On the other hand, if the VIX increases, the ETF loses value. This fund is hedged to the Canadian dollar. The S&P VIX index measures the volatility of the S&P 500 index. This volatility is meant to be forward looking and is a widely used measure of market risk, often referred to as the “investor fear gauge.” With volatility low and declining over the past few years, the VIX index also declined. This resulted in a strong positive performance for the BetaPro Inverse ETF…

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