Faced with two investments, which one would you choose: VXX vs. VIXY? How different are these two volatility ETFs from the more popular funds? Which one can help your investment portfolio reach the dividends and yields that you expect?
Do you need to diversify your portfolio? We all know by now that having our portfolios with the best prospectus means one step closer to financial freedom. But where do we really hedge our hard-earned money?
Before investing, you need to check which fund suits you the best as an investor. You need to have investment strategies and look closely into the investment companies and trading platforms before giving your hard-earned money.
Your investment objectives should align with your current financial capacity. In that way, you will be sure that you will get your fixed income and also have a diversified portfolio which will be good for you in the long run.
This article highlights a comparison between two volatility ETFs (exchange-traded funds) VXX and VIXY. We will look at their general profile, composition, and performance and assess which ETF would be a better investment option.
Before we delve into discussing details about the two ETFs, it is important to understand the concept of volatility ETFs. Doing so may help you assess if, as an investor, it is in your best interest to invest in either of the two funds.
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Volatility ETFs And Volatility Index
Volatility ETFs are linked to volatility futures and are also referred to as “fear indicators”. The name is derived from their capability to offer exposure to volatility in varying forms.
These funds tend to move in a direction opposite to the market. They are preferred by investors who seek to leverage the sudden market dips and capitalize on the opportunity.
Regarded as a popular trading product, volatility ETFs are considered suitable for short-term ETF trading. These funds own futures centered on CBOE (The Chicago Board Options Exchange) Volatility Index or VIX. The CBOE Volatility Index reflects the projected market volatility of the S&P 500. The short-term futures reflect the anticipated VIX values at the time of expiration of these contracts.
The VIX Volatility Index reflects the volatility in the stock price of the S&P 500 option prices for the next thirty days.
So, here is what you need to know about the VIX ETFs:
- The standard ETFs in the market are suitable for long-term investment. The VIX ETFs are traded within one day or a week maximum, so they are for the very short term.
- Moreover, volatility ETFs are not really ETFs per se. They come in the commodity pool arrangement. They have wide equity positions, are connected to the VIX future exposures, and are referred to as ETNs (exchange-traded notes).
- While the volatility ETFs seek to decrease the equity risk downside, they also attempt to limit the cost of VIX future exposures in the long term.
- Liquidity is an essential characteristic of volatility ETFs. The more liquid a volatile fund is, the better.
With that knowledge by your side, we offer you a comparison of two highly regarded volatility ETFs, VIXX and VIXY. If you seek exposure to the VIX for one or two days, these can be a suitable option.
Both VXX and VIXY are considered to be alternative volatility funds. It implies that both funds are investing in more or less the same kind of investments behind the scenes.
VXX: iPath Series B S&P 500 VIX Short-Term Futures ETN
VXX is iPath Series VIX Short Term Futures ETN which tracks the VIX. VXX seeks to offer exposure to the systematic long position in the VIX futures contracts for the first and second months. The fund was launched in 2009.
Regarded as a very popular fund, VXX is the most liquid ETN. VXX has the highest number of total assets among the volatility funds at $821.81 million. VXX also has the largest average trading volume among other volatility funds.
The plus side of ETNs is that they do not have any underlying assets and only track the volatility index, thus limiting the risk of tracking error commonly associated with exchange-traded funds. As volatility ETN, it is suitable for investment for a few days or weeks at the most and is not suitable to be held for a longer period.
VXX reflects the implied volatility of the S&P 500 index at various moments along the volatility curve. The return on investment for VXX is linked to the S&P 500 VIX Short-Term Futures Index performance.
VIXY is the VIX Short-Term Futures ETF by ProShares. The fund was launched in 2011 and has a current net worth of $349.92 million. VIXY aims to track the performance of the S&P 500 VIX Short-term Futures Index.
Additionally, VIXY is designed to provide investment results at par with the S&P 500 VIX Short-term Futures Index. They do that through investment in the futures contracts of VIX.
Like its counterparts, a volatility ETF like VIXY is suitable for downside protection when mainstream stock prices are (expected to) fall. While the fund experiences a hike in case the S&P has a dip or is falling, it does not have a converse relationship with the S&P 500.
VXX Vs. VIXY: Key Differences
Both VXX and VIXY are volatile funds with some similarities and differences. Both funds invest in the CBOE Volatility Index (VIX) Futures. Here are a few differences between the two:
- VXX is iPath S&P 500 VIX- Short Term Futures ETF, while VIXY is the ProShares VIX Short-Term Futures ETF.
- VXX is issued by Barclays Capital Inc., while ProShares issues VIXY.
- VXX has net assets worth $821.81 million, while the worth of net assets of VIXY is $349.92 million.
- VXX has an expense ratio of 0.89%, while VIXY has an expense ratio of 0.87%.
VXX Vs. VIXY: Composition Differences
Unlike mainstream ETFs, VXX and VIXY do not have any stocks in companies and thus do not hold any weight in any mainstream sectors. These funds invest in the CBOE Volatility Index (VIX) Futures.
The composition of the VXX is given below:
| S. No | Company | Percentage in the portfolio |
| 1 | CBOE Volatility Index (VIX) Futures | 100% |
The holdings portfolio for VIXY follows:
| S. No | Company | Percentage in the portfolio |
| 1 | CBOE Volatility Index (VIX) Futures MAY22 | 64.97% |
| 2 | CBOE Volatility Index (VIX) Futures JUN22 | 34.99% |
VXX Vs. VIXY: Performance Differences
Now, let’s look at the ten-year performance comparison of the two funds. Here is the performance summary for VXX:
| S.NO | Period | Percentage Return |
| 1 | Year-to-date | 34.92% |
| 2 | 1-month return | 4.17% |
| 3 | 3-month return | 33.62% |
| 4 | 1-year return | -45.06% |
| 5 | 3-year return | -40.18% |
| 6 | 5-year return | 0.00% |
| 7 | 10-year return | 0.00% |
Let’s look at the performance review of VIXY:
| S.NO | Period | Percentage Return |
| 1 | Year-to-date | 4.09% |
| 2 | 1-month return | -19.64% |
| 3 | 3-month return | 3.27% |
| 4 | 1-year return | -58.05% |
| 5 | 3-year return | -45.18% |
| 6 | 5-year return | -40.23% |
| 7 | 10-year return | -49.43% |
As we can see, VXX has historically outperformed VIXY. While the past performance is not a guarantee of future returns, if we compare the values in real-time, VXX seems to perform better than VIXY.
VXX Vs. VIXY: Fees
In addition to performance, fees are an important consideration when making an investment decision.
When we consider the expense ratio of the two funds, we can see that VXX has an expense ratio of 0.89%, while VIXY has an expense ratio of 0.87%. While a small percentage difference does not seem significant in the short term, the expense value can impact the total value in the long term.
VXX Vs. VIXY: What You Need to Know As An Investor
Now that you have a basic understanding of the volatility ETFs and the underlying index, you need to understand a few significant details before making an investment decision.
VXX and VIXY do not track the volatility index VIX. Rather, they track the futures on the index. When you invest in volatility ETFs, you do not get access to the VIX index. They just track the futures for the VIX index.
Thus, the VIX Index is not investable for periods over years or even months. Similarly, while the return trend of VIX ETFs like VXX and VIXY will differ widely from that of the VIX index, they also tend to lose significant money in the long run.
Because the stock market goes up over time, these types of funds that bet against the stock market will go down over time. If that goes on for a long time, you can lose money. As an investor, if you have the temperament to track and leverage the sharp market dips, you may consider investing in VXX as downside protection when the stock prices (expected to) fall.
VXX Vs. VIXY: Frequently Asked Questions
Is VIXY The Same As VXX?
Both VXX and VIXY are volatility ETFs. However, VXX is issued by Barclays Capital Inc, while VIXY is issued by ProShares.
Is VIXY A Good Investment?
As a volatility VIX ETF, VIXY is most suitable for investment for a few days or weeks. It is not suitable to be held for a more extended period. VIXY can provide protection if the mainstream stock prices are falling or expected to fall.
Conclusion – VXX Vs. VIXY
In the comparative data presented in this article, it is clear that VXX has the edge over VIXY when it comes to performance and expense ratio. Among all the volatility funds, VXX even holds the highest number of total assets as well as the largest average trading volume.
These figures can be attractive to investors, implying that their investments are backed up by the VXX fund assets and equating volume with liquidity. This allocation should really help the diversification of your portfolio.
Having said that, success in exchange-traded fund investing will largely depend on your investment strategy. The best choice between the two, or even whether to invest in volatility funds, still rely upon your preference as an investor. Finding an advisor or fund manager might help you in deciding what you should do to thrive in the ETF industry. Ask any trader, and you will surely get these asset classes as part of your ETF investing strategy.
Check out our series on investing in stocks, bonds, and ETFs to learn more about the different ways to invest your money passively towards achieving your financial goals.
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Marjolein is a financial consultant who has built over €4,000 monthly passive income and saves over 70% of her income. Read Radicals’ inspiring story, from stuck in the 9-to-5 to loving life. Feel free to send Radical a message at the bottom of this page