Published on:

Investigation: ProShares VIX Short-Term Futures (VIXY)

Fitapelli Kurta is investigating customer complaints and potential lawsuits related to broker recommendations of ProShares VIX Short-Term Futures (VIXY), which is a short term inverse leveraged ETF.  ProShares VIX Short-Term Futures (VIXY) is an extremely speculative and risky product, which is often misunderstood by the brokers who recommend its purchase.    Specifically, ProShares VIX Short-Term Futures (VIXY) is designed to be held for only one day and we are interested in speaking to investors who lost money by holding the product for periods longer than one day.

ProShares VIX Short-Term Futures (VIXY) is a type of ETF known as an “inverse, leveraged ETF.”  ETFs, or exchange traded funds, like mutual funds, offer investors an opportunity to pool their money into a fund that makes investments in a particular asset class (i.e. all utility stocks).  Unlike mutual funds, ETFs are traded on an exchange and at market prices.  The goal of ETFs, such as ProShares VIX Short-Term Futures (VIXY), is to track a particular index or asset class.  Inverse ETFs are a type of ETF, which track the opposite of an index (i.e. when the market decreases these funds increase and vice versa).  Leveraged ETFs, such as ProShares VIX Short-Term Futures (VIXY), are ETFs that use leverage so the tracking effect is multiplied.  So for example, an inverse 2X leveraged ETF should increase 2X the decrease of the index that it is tracking.

Inverse leveraged ETFs, such as ProShares VIX Short-Term Futures (VIXY), “reset” daily, which means that they are designed to achieve their stated objectives (i.e. tracking an index) only on a daily basis and no longer than one day.  In fact the prospectus for ETFs, such as ProShares VIX Short-Term Futures (VIXY), warns investors that if the ETF is held for periods longer than one day, returns will begin to differ from the underlying index.  It is possible, therefore for an index to be flat (i.e. returning a zero return), but the ETF that is held over the same period may be down considerably.

Brokers often market inverse leveraged ETFs, such as ProShares VIX Short-Term Futures (VIXY), to clients as a way to hedge against market losses.  These brokers also recommend that ProShares VIX Short-Term Futures (VIXY) be held for extended periods of time.  This advice is always inappropriate because products such as ProShares VIX Short-Term Futures (VIXY) are not designed to be held for periods of longer than one day.  Thus holding securities such as ProShares VIX Short-Term Futures (VIXY) makes little sense from an investment prospective – even its own prospectus will state this.

In a period where the overall market is thriving, brokers recommend ProShares VIX Short-Term Futures (VIXY) as a long term “hedge” without really understanding the product.  ProShares VIX Short-Term Futures (VIXY) should never be held for periods of longer than one day as doing so would be a reckless “strategy,” which could ultimately end in catastrophic losses.

Our firm has successfully prosecuted cases involving brokers that have recommended ProShares VIX Short-Term Futures (VIXY).  If you or someone you know lost money investing in ProShares VIX Short-Term Futures (VIXY), we are interested in speaking to you.