When deciding between two investments, VXX or VIXY, which one would you pick? How do these volatility ETFs compare to more popular funds, and which one can help you achieve your desired dividends and yields?
Diversifying your portfolio is crucial. We all know that a well-rounded portfolio brings us closer to financial freedom. But where should you invest your hard-earned money?
Before diving in, it’s essential to identify the fund that best suits your needs. Develop investment strategies and thoroughly research investment companies and trading platforms before committing your money.
Your investment goals should align with your financial capacity to ensure you receive a steady income and maintain a diversified portfolio for long-term benefits.
This article compares two volatility ETFs, VXX and VIXY, examining their profiles, compositions, and performances to determine the better investment option.
First, let’s understand volatility ETFs. These funds are linked to volatility futures and are known as “fear indicators” because they offer exposure to market volatility. They usually move in the opposite direction of the market, making them attractive to investors looking to capitalize on sudden market dips.
Volatility ETFs are popular for short-term trading. They own futures based on the CBOE Volatility Index (VIX), which reflects the expected market volatility of the S&P 500. The short-term futures represent anticipated VIX values at the time of contract expiration.
Now, let’s compare VXX and VIXY. Both are alternative volatility funds investing in similar types of assets.
VXX, launched in 2009, is the iPath Series VIX Short Term Futures ETN. It offers exposure to VIX futures contracts for the first and second months and is the most liquid ETN with the highest total assets among volatility funds at $821.81 million. VXX tracks the S&P 500 VIX Short-Term Futures Index and is suitable for short-term investments.
VIXY, introduced in 2011, is the VIX Short-Term Futures ETF by ProShares with a net worth of $349.92 million. It aims to match the performance of the S&P 500 VIX Short-Term Futures Index by investing in VIX futures contracts. Like VXX, VIXY is suitable for short-term downside protection when mainstream stock prices are expected to fall.
Both VXX and VIXY invest in the CBOE Volatility Index (VIX) Futures but differ slightly. Neither holds stocks in companies or mainstream sectors, focusing solely on VIX futures.
Historically, VXX has outperformed VIXY. Although past performance doesn’t guarantee future returns, VXX tends to perform better in real-time comparisons. Additionally, VXX has a slightly higher expense ratio of 0.89% compared to VIXY’s 0.87%. While the difference seems minor, it can impact long-term returns.
It’s important to note that VXX and VIXY track futures on the VIX index, not the index itself. As such, these funds are not suitable for long-term investments as they tend to lose value over time due to the overall upward trend of the stock market.
VXX, issued by Barclays Capital Inc., and VIXY, issued by ProShares, are both best suited for short-term investments. VIXY can protect your portfolio when stock prices are falling or expected to fall.
In conclusion, VXX appears to have an edge over VIXY in terms of performance and expense ratio. It holds the highest number of total assets and the largest average trading volume among volatility funds, offering liquidity and diversification benefits.
Ultimately, the success of your ETF investments depends on your strategy. Whether you choose VXX, VIXY, or another fund, it’s important to align your choice with your investment goals. Consulting an advisor or fund manager can help you make informed decisions and thrive in the ETF market.