Don't Bet Against Us

Guess the investment…

Source: ETF Database. The chart shows price in Dollars on the y-axis.

Investment in the least literal sense of course.

This little money incinerator is the nattily named ProShares Ultra VIX Short-Term Futures ETF and it is what is referred to as a leveraged volatility product. This one, specifically, provides 1.5 times exposure to the VIX index (the primary measure of market volatility).

In layman’s terms, volatility refers to the level of swings in prices that stocks experience over time. Typically, market volatility spikes when things aren’t going all that well - and so what we have in this product is a means of profiting from market falls, particularly sudden and violent ones.

You can sort of see how this thing works from the chart above. Big spike five years ago during COVID when the world was ending, a gradual slow death ever since.

This is the first big point to make about these things. They are absolutely not meant to be bought and held.

Without going into too much technical detail, the cost of implementing strategies of this nature is huge, with the consequence that “investing” into these products over long periods of time will only be marginally more profitable than walking into the garden and setting your life savings on fire.

And yet, these things still take in a boat load of money.

Source: ETF Database. The chart shows net fund flows (money invested into the product minus money taken out) month by month over the past five years.

Over $4.5 billion in funds over the past five years in fact.

These flows can be hard to wrap your head around when we see that these instruments have only served to destroy shareholder value over the long term.

And still people continue to bet against the markets using this thing as a proxy for fear. We can only hope and pray they understand that these products are meant to be traded in and out of rather than “bought and held”.

Over the long term, progress and growth are undeniable. They are inevitable. The path of human progress is almost a mirror image of the first chart above, exponentially up and to the right.

No matter how miserable things may seem, we all have at least some interest in making things better. Get up, go to work, make money, improve life, care for others. That weight of will, the perpetual shoulder to the wheel means that any bet against progress can only over be profitable over the shortest of periods.

Which, all things considered, is a pretty cool thing.

Have a great weekend.

Past performance is not indicative of future returns. None of the above is intended to constitute advice to any one individual. If you require advice as it pertains to your specific circumstances, please contact a regulated financial adviser.