ETF Stock Trading

How VIXY ETF Compares to Other Volatility ETFs: The Complete Guide

If you’re looking to protect your investments during market downturns, the ProShares VIX Short-Term Futures ETF (VIXY) might seem appealing.

But before jumping in, understand this: volatility ETFs like VIXY are short-term tactical tools, not long-term investments. They typically lose value over time and should only be used by experienced traders for brief periods—usually days, not months or years.

What Is VIXY and How Does It Work?

VIXY is an exchange-traded fund that aims to track the S&P 500 VIX Short-Term Futures Index. But what does that actually mean in plain English?

Think of VIXY as a financial product that goes up when the stock market gets choppy and investors get nervous. When stocks tumble and fear rises, VIXY usually climbs. When markets are calm, VIXY tends to fall[1].

Unlike regular stock ETFs that hold actual stocks, VIXY doesn’t directly invest in the VIX (the “fear index”). Instead, it holds futures contracts—essentially agreements to buy or sell the VIX at a specific price on a future date[1].

Specifically, VIXY maintains a rolling position in first-month and second-month VIX futures contracts to maintain approximately one month to expiration.

As of March 31, 2025, VIXY’s holdings were:

  • 52.79% in April 2025 VIX futures contracts
  • 47.05% in May 2025 VIX futures contracts
  • The remainder in cash and other assets[16]
VIXY All Time Performance

How Is VIXY Different From the VIX Index?

The VIX index, often called the “fear gauge,” measures expected market volatility over the next 30 days based on S&P 500 options prices[6]. Higher VIX readings (above 30) suggest high anxiety, while lower readings (below 20) indicate relative calm.

Important distinction: You can’t directly invest in the VIX index itself. That’s why products like VIXY exist—they attempt to provide similar exposure through futures contracts[7].

But here’s the catch: VIXY doesn’t perfectly mirror the VIX. Due to how futures contracts work, VIXY often underperforms the VIX index over time[6]. This is because of something called “contango”—where future prices are higher than current prices—which creates a constant drag on performance.

How Does VIXY Compare to VXX?

The closest competitor to VIXY is the iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX). Both track the same index and serve similar purposes, but with key differences[2][4].

Structure Differences

VIXY is an exchange-traded fund (ETF), while VXX is an exchange-traded note (ETN). What’s the difference?

  • VIXY (ETF): A fund that actually holds the underlying assets (VIX futures contracts)
  • VXX (ETN): A debt security issued by Barclays that promises returns linked to the index without actually holding the assets[2]

This structure difference matters for several reasons:

  • Credit risk: VXX carries the additional risk of the issuer (Barclays) defaulting, though this risk is typically small
  • Tracking accuracy: ETNs can sometimes track their indexes more precisely since they don’t have to actually buy and sell the underlying assets
  • Tax treatment: ETFs and ETNs may be taxed differently

Cost Comparison

VIXY has a slightly lower expense ratio at 0.85% compared to VXX’s 0.89%[2][4]. While this small difference might seem trivial, it can add up for active traders making frequent, large trades.

Performance Comparison

The performance of VIXY and VXX is remarkably similar since they track the same index:

  • Their correlation is extremely high at 0.97 (where 1.0 is perfect correlation)[2][4]
  • Both have similar volatility measurements (around 24-25%)
  • Both have experienced massive maximum drawdowns of nearly 100% since inception[2][4]

For most practical purposes, there’s little performance difference between the two. Your choice might come down to personal preference regarding the ETF vs. ETN structure or slightly lower fees with VIXY.

How Does VIXY Compare to Other Volatility ETFs?

Beyond VXX, several other volatility ETFs serve different purposes or use different strategies:

VIXM (ProShares VIX Mid-Term Futures ETF)

While VIXY focuses on short-term VIX futures (1-2 months), VIXM uses mid-term VIX futures (4-7 months)[3]. This creates important differences:

  • VIXM is typically less volatile than VIXY
  • VIXM usually experiences less severe contango effects
  • VIXM tends to decline more slowly during calm markets
  • VIXM won’t spike as dramatically during market crashes

For those seeking volatility exposure with less dramatic swings, VIXM might be preferable to VIXY.

UVXY (ProShares Ultra VIX Short-Term Futures ETF)

UVXY is essentially a leveraged version of VIXY, designed to deliver 1.5x the daily performance of the same underlying index[11]. This means:

  • When VIXY goes up 5%, UVXY aims to go up 7.5%
  • When VIXY falls 5%, UVXY aims to fall 7.5%
  • UVXY experiences even more severe long-term decay than VIXY
  • UVXY is even riskier and less suitable for holding periods longer than a day

SVXY (ProShares Short VIX Short-Term Futures ETF)

SVXY takes the opposite approach of VIXY, providing -0.5x the daily return of the S&P 500 VIX Short-Term Futures Index[11]. This means:

  • SVXY rises when volatility falls (market calms)
  • SVXY falls when volatility rises (market fear)
  • SVXY can benefit from the contango effect that harms VIXY
  • SVXY remains extremely risky, having dropped 90% in a single day during “Volmageddon” in February 2018[6]

Why Do Volatility ETFs Lose Value Over Time?

Here’s the crucial fact that catches many inexperienced investors: volatility ETFs like VIXY are practically guaranteed to lose value over time during normal market conditions. The search results show VIXY’s 5-year annualized return at -50.4%[8]. That’s not a typo—it lost over half its value annually for five years!

Why does this happen? Three main reasons:

  1. Contango: VIX futures contracts typically cost more for longer dates. Since VIXY constantly rolls from one-month to two-month contracts, it’s usually selling lower-priced contracts and buying higher-priced ones—creating a constant drain[3][6].
  2. Mean reversion: Unlike stocks that tend to rise over the long term, the VIX tends to spike and then return to its average. This means volatility products don’t benefit from long-term growth trends[3].
  3. Roll costs: The mechanical process of rolling futures contracts incurs trading costs that eat into returns over time[9].

This is why the search results consistently emphasize that VIXY is only appropriate as a short-term trading vehicle, not a buy-and-hold investment.

When Should You Consider Using VIXY?

Given the risks, when might VIXY actually be useful? Here are the most appropriate scenarios:

As a Short-Term Hedge

VIXY can serve as a temporary hedge against market downturns. For example, during Trump’s tariff announcement on April 3, 2025, VIXY soared nearly 20% while the broader market fell sharply[13]. Investors who held VIXY alongside their stock portfolios had some protection against these losses.

The key word is “temporary.” The hedge works for days or weeks, not months or years.

For Short-Term Tactical Trading

Professional traders who have strong convictions about upcoming market volatility might use VIXY to capitalize on anticipated volatility spikes. This is a high-risk strategy best left to professionals.

During Periods of Market Stress

During times of high uncertainty (like the COVID-19 crash of 2020), VIXY can provide substantial short-term returns. But timing entry and exit precisely is extremely difficult.

What Questions Do People Frequently Ask About VIXY?

Is VIXY a Good Long-Term Investment?

No. VIXY is explicitly designed for short-term use and typically loses substantial value when held for extended periods. According to the search results, VIXY has lost about 50% annually over a five-year period[8]. ProShares (the fund provider) explicitly warns that the fund is “intended for short-term use” and that “investors risk potentially losing a substantial portion of their investment” when holding it longer[3].

How Does VIXY Perform During Market Crashes?

VIXY typically performs strongly during sharp market downturns. For example, it jumped nearly 50% in a single day during a market scare[1]. However, timing these crashes is notoriously difficult, and the gains are often quickly given back when markets stabilize.

What’s the Difference Between VIXY and Options?

Both VIXY and put options can profit from market declines, but they work differently:

  • VIXY: Rises with expected volatility, regardless of market direction
  • Put options: Profit specifically from downward price movements

Some traders view VIXY as a simpler alternative to options strategies since it doesn’t require options approval in your brokerage account and doesn’t have time decay in the same way options do[10]. However, VIXY still experiences value decay over time due to contango.

How Much of My Portfolio Should I Allocate to VIXY?

Given the high-risk nature of VIXY, most financial professionals would recommend keeping any allocation extremely small—typically less than 5% of a portfolio, and only for short periods. Many would argue that average investors shouldn’t use it at all.

What Are Alternatives to VIXY for Hedging?

If you want to protect your portfolio against market downturns but are concerned about VIXY’s risks, consider these alternatives:

Treasury Bonds

When stocks fall sharply, Treasury bonds often rise as investors seek safety. The iShares 20+ Year Treasury Bond ETF (TLT) is one example that rose more than 1% during the April 2025 market selloff[13].

Put Options on Market Indexes

Purchasing put options on the S&P 500 (through SPY or SPX options) provides more direct downside protection. Unlike VIXY, options have specific expiration dates and strike prices, giving you more control over your hedge.

Low-Volatility Stock ETFs

Funds like the Invesco S&P 500 Low Volatility ETF (SPLV) hold stocks that historically experience smaller price swings. While these won’t rise during market crashes, they may fall less than the broader market.

Diversification Across Asset Classes

Perhaps the simplest approach is traditional diversification across stocks, bonds, real estate, and commodities, which can naturally reduce portfolio volatility without using complex products like VIXY.

How Has VIXY Performed Recently?

As of early April 2025, VIXY has been in the spotlight due to market volatility triggered by President Trump’s tariff announcements. On April 3, 2025, VIXY soared nearly 20% as markets broadly slumped[13].

However, these gains came after a period of decline. Year-to-date returns prior to the announcement showed VIXY up 12.13%, but with a one-year return of 0.88% and a three-year return of -2.62%[4]. The five-year annualized return was a staggering -56.76%[4].

This performance pattern is typical for volatility ETFs—they experience long, steady declines during calm markets, punctuated by sharp spikes during market stress.

Final Thoughts: Is VIXY Right for You?

VIXY and similar volatility ETFs are sophisticated products with specific use cases. Here’s a quick summary to help you decide if VIXY fits your needs:

Consider VIXY if you:

  • Need a very short-term hedge against market volatility
  • Are an experienced trader comfortable with sophisticated ETFs
  • Understand the mechanics of VIX futures and contango
  • Plan to hold the position for days or weeks, not months or years
  • Can accept the high likelihood of losing money if your timing is off

Avoid VIXY if you:

  • Want a buy-and-hold investment
  • Are looking for long-term portfolio growth
  • Don’t fully understand how VIX futures work
  • Are uncomfortable with potentially rapid value decay
  • Need predictable performance patterns

The key takeaway? Think of VIXY like an umbrella during a storm—valuable when it’s raining, but not something you carry all the time. It’s a specialized tool for specific situations, not a core investment.

When used appropriately by knowledgeable investors for short periods, VIXY can be effective. When misunderstood or misused, it almost guarantees losses. Your financial strategy should match your knowledge level, risk tolerance, and investment timeline—for most investors, that means using simpler, more traditional hedging approaches rather than sophisticated volatility ETFs like VIXY.

Citations:
[1] https://www.etf.com/sections/vixy-rises-and-falls-volatility
[2] https://portfolioslab.com/tools/stock-comparison/VIXY/VXX
[3] https://www.proshares.com/strategies/volatility
[4] https://portfolioslab.com/tools/stock-comparison/VXX/VIXY
[5] https://www.reddit.com/r/options/comments/11kgr4m/understanding_the_risks_of_vixy/
[6] https://www.investopedia.com/why-chasing-volatility-with-a-vix-etf-might-not-pay-off-8691709
[7] https://finance.yahoo.com/news/why-fearful-investors-shouldn-t-132908168.html
[8] https://www.bankrate.com/investing/best-volatility-etfs/
[9] https://www.investopedia.com/top-vix-etfs-for-q1-2024-8417118
[10] https://seekingalpha.com/article/4662741-vixy-like-a-put-option-without-using-options
[11] https://www.5paisa.com/finschool/vix-and-volatility-etfs/
[12] https://seekingalpha.com/article/283601-vxx-or-vixy-note-fund-or-stupid
[13] https://www.etf.com/sections/news/trump-tariffs-sends-vixy-soaring-etfs-broadly-slump
[14] https://www.etf.com/sections/etf-basics/volatility-etfs-everything-you-need-know
[15] https://www.cboe.com/tradable_products/vix/faqs/

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