Current market valuations in traditional asset classes like equities and bonds could make attractive returns difficult to achieve. In our view, one source of attractive returns that remains is volatility premium harvesting, or the return generated by selling volatility. In an attempt to collect that return, investors can purchase shares of ETFs that sell VIX futures.
But selling volatility can be tricky. Without a calculated approach, it can potentially wipe out years of gains and principal in a single drawdown. We believe many investors are mechanically shorting the VIX, with no regard as to whether the VIX is at an all-time low or at an all-time high. They potentially purchase the same amount of short exposure no matter the environment.
That doesn’t make sense to us. What if there was a better way?
- The ETF was designed with a responsive approach to short volatility, attempting to adjust its exposure as needed. It generally seeks to increase short exposure to the S&P 500 VIX Short-Term Futures Index as the VIX rises and seeks to decrease it as the VIX falls.
- WEIX uses predetermined market signals to close its short VIX exposure (something we call "stress mode" triggering), in an attempt to protect your investment in extremely volatile markets.
The Fund is not appropriate for all investors and presents different risks than other funds. The Fund includes risks relating to investing in and seeking exposure to VIX Futures Contracts. An investor should only consider an investment in the Fund if they understand the consequences of seeking exposure to VIX Futures Contracts. The Fund uses leverage and is riskier than sim exchange-traded funds that do not use leverage. An investor should only consider an investment in the Fund if they understand the consequences of seeking daily inverse leveraged investment results. The performance of the Fund can be expected to be very different from the performance of the VIX. The Fund’s investments may be illiquid and/or highly volatile and the Fund may experience large losses from buying, selling, or holding such investments. An investor in the Fund could potentially lose the full principal value of their investment within a single day. Shareholders who invest in the Fund should actively manage and monitor their investment, as frequently as daily.