As you can tell by my writing, I’m a big proponent of all types of ETF investing, but there are definitely good and bad ETFs. I was recently reading a comparison of a few of the volatility ETF offerings and was quite shocked by their performance. It’s not too surprising that a derivative of a derivative (an ETF based on the Futures Contract of an Underlying Index) would have some tracking error but wow, these are worse than crude oil. In the short run (10 days) the only one that matched the explosion in the VIX was the leveraged TVIX, the VXX which is so popular didn’t even come close.

If that wasn’t bad enough, just take a look at the longer term chart of the past few months. You would’ve had to have impeccable timing in order to make money in one of these without being shredded. I knew from experience that volatility is tough to play on the long side and these ETFs are not going to make it any easier. For the average investor I would suggest not even considering these instruments, they are strictly for experienced short term traders!