Investors seeking to hedge against abrupt market shocks have received little comfort this year from volatility-linked exchange-traded products.

Among the worst-performing year-to-date ETFs are the Volatility Shares 2x Long VIX Futures ETF (BATS:UVIX), ProShares Ultra VIX Short-Term Futures ETF (BATS:UVXY), iPath Series B S&P 500 VIX Short-Term Futures ETN (BATS:VXX), and ProShares VIX Short-Term Futures ETF (BATS:VIXY), all down double digits as markets provided more stability than turmoil.

The VIX, Wall Street’s so-called “fear gauge,” has been muted throughout much of 2025, reflecting strong optimism in equity markets and tempered investor anxiety despite geopolitical flashpoints and changes in interest rate expectations.

As of Thursday, a day after the Fed cut rates by 25 basis points, the Volatility Index stood at 15.7, 9.5% lower YTD. Though the index has experienced short-term spikes, those have rapidly dissipated, leaving long-volatility strategies with little to consume.

Fundamental to the underperformance is structure. Instead of actually holding the VIX directly, volatility ETFs and ETNs follow VIX futures, which need to be rolled over as they near expiration. The rolling process typically happens in contango, where longer-dated contracts are more expensive than near-dated ones. That means funds systematically “sell low and buy high,” which creates a chronic drag on returns.

The anguish is compounded for the leveraged products. UVIX, which targets twice the performance of VIX futures on a daily basis, has dropped over 70% year to date, and UVXY, another leveraged fund, has declined more than 50%. Non-leveraged peers VXX and VIXY have lost approximately 30% each, still enough to keep them among the year’s worst performers.

Volatility-linked ETFs are designed as tactical tools. Unless you're precisely timing short-term spikes in fear, the roll costs and mean reversion of volatility will grind away returns.

That hasn't stopped traders from using them as short-term hedges or speculative plays. But for buy-and-hold investors, the lesson is clear: in calm markets, volatility products bleed.

Until a persistent increase in market tension arises, volatility ETFs will likely stay in the doldrums, a reminder that pursuing fear is usually more expensive than it appears on paper.

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Image created using artificial intelligence via Midjourney.