In a recent interview with Smart Money, Matt Reiner weighed in on what to expect from your portfolio with market volatility’s impact on Exchange Traded Funds (ETFs). Reiner says, “It’s something that will do well when the rest of your portfolio is getting hit.”
Specifically, Reiner is commenting on the Chicago Board Options Exchange Market Volatility Index — more commonly known as the VIX, or “fear index”. In short, the VIX measures how shaky traders expect the market to be in the future, based on the prices of options contracts. When the index moves higher, these funds are meant to benefit.
The first VIX-linked funds were launched in the wake of the downturn as an easy, liquid way to bet on market volatility itself and now there are 30 exchange traded funds and notes. These ETFs all launched after the 2008 downturn in the economy. Reiner, along with other investing pros, say the funds make little sense for buy-and-hold investors. They’re most profitable, they say, for tactical investors who snap up the funds during temporary spikes in the VIX.
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