Investors Pile Into VIX Products Despite Mounting Costs

Demand for volatility-linked products has surged in 2025, with the Barclays iPath S&P 500 VIX Short-Term Futures ETN growing over 300%. These instruments promise outsized payouts if equity markets tumble, but carry structural costs that erode returns during calm periods.

"These funds are like chainsaws — effective for specific jobs but dangerous if mishandled," said Bloomberg Intelligence's Eric Balchunas. The products suffer decay when future volatility expectations outpace current market swings, making timing critical. A hypothetical trade in the Volatility Shares 2x Long VIX Futures ETF could have tripled money in days during April's tariff shocks, but the same position held for a year WOULD have lost 78%.

Despite the risks, capital continues flowing into bleeding funds. VXX shows $1 billion assets with 312% net inflows despite a 32% decline, while UVIX attracts $510 million despite a 78% plunge. The pattern repeats across major VIX products, suggesting investors are paying premium prices for potential crisis protection.