Investors who bought into inverse volatility-linked exchange traded funds (ETFs) on the recommendation of their broker or financial advisor may be able to recover their losses in FINRA arbitration. Inverse volatility-linked investments are designed to return a profit when the market experiences periods of calmness, or low volatility. However, unlike more traditional investments and strategies such as a buy-and-hold stock portfolio, investing in volatility-linked products is extremely complex and risky, and therefore, not likely a suitable strategy for the average, retail investor.
Certain inverse ETFs are structured to provide investors with returns that are positive when the CBOE Volatility Index (the “VIX”) falls, and negative when the VIX rises, and investors in these products essentially are taking the view that the market will remain relatively steady. However, earlier this month stock market volatility and the VIX rose rapidly as the stock market whipsawed erratically.
ETFs that lost value during this market turmoil include the following:
VelocityShares Daily 2X VIX Short-Term ETN (TVIX)
ProShares Short VIX Short-Term Futures (SVXY)
iPath S&P 500 VIX Short-Term Futures ETN (VXX)
VelocityShares Daily Inverse VIX Short-Term ETN (XIV)
ProShares Ultra VIX Short-Term Futures (UVXY)
ProShares VIX Short-Term Futures (VIXY)
Last year, FINRA reminded member firms of the dangers of selling such volatile products to ordinary investors. However, according to Bloomberg, these products have rapidly grown in popularity, and as much as $8 billion of financial products may have been tied to the VIX index alone.
Some investors with losses in these complex financial products may not have understood, or been informed by their financial advisor, of the extreme risk associated with investing in inverse ETFs. At a minimum, investors who are steered into inverse volatility-linked products as XIV should be fully informed of the characteristics and risk components of such investments. Furthermore, under FINRA Rule 2111, the so-called suitability rule, stockbrokers and investment advisors must have a reasonable basis for any investment recommendations that they make to a customer.
The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in representing investors who have sustained losses due to the negligence or misconduct of stockbrokers or investment advisors. Investors may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or firstname.lastname@example.org for a no-cost, confidential consultation.