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Amid concerns over US trade policies impacting Wall Street, JPMorgan Chase & Co. is reintroducing a familiar strategy aimed at profiting if market volatility eases. The strategy involves the Inverse VIX Short-Term Futures ETNs (VYLD), which provide exposure to an index that shorts futures linked to the CBOE Volatility Index (VIX), Wall Street's "fear gauge."

These types of products have had a mixed history due to major blowups in the past, particularly when calm markets suddenly became volatile. Their complex mechanics have made them difficult for even seasoned investors to grasp, and previous design flaws amplified risk. However, recent improvements in these strategies aim to offer more protection.

JPMorgan's strategy is structured to gain 1% for every point that VIX futures fall, not factoring in fees or cash returns. It works by increasing exposure to VIX futures during turbulent market conditions, allowing investors to profit if volatility then subsides.

“This is a unique situation,” said Todd Sohn, senior ETF strategist at Strategas. “Shorting volatility — through a structure that really doesn’t see much attention anymore: an ETN.”

Concerns about White House tariff policies affecting US growth and inflation have caused the S&P 500 to fall nearly 8% from its peak, with the VIX remaining above its 10-year average for the past month. Despite this, those betting on reduced volatility through products like VYLD will have to contend with the products' volatile past.

In 2018, the VelocityShares Daily Inverse VIX Short-Term ETN collapsed by over 90% in a single day, and the VelocityShares Daily 2x VIX Short-Term ETN (TVIX) was delisted during the pandemic. Additionally, in 2022, Barclays faced a pricing debacle on two major exchange-traded notes, while a global market selloff last year triggered a sharp VIX spike, though it quickly reversed.

Still, JPMorgan has seen a growing interest in volatility products in recent years, noting that the new product would have offered a similar return profile to other short VIX products but with less dramatic losses during unexpected market corrections.

A key risk of ETNs, compared to exchange-traded funds (ETFs), is that they are unsecured debt obligations backed by the issuer, rather than the underlying assets. They often use derivatives to amplify returns, making them vulnerable to sudden market shifts. These products are typically designed for short-term holdings.

Rocky Fishman, CEO of research firm Asym 500, noted that short VIX futures can be a useful part of a portfolio if properly managed. Over the past decade, a hypothetical inverse VIX strategy would have lost about 75% of its value, while a strategy involving Treasuries would have gained 10%. However, a balanced portfolio of both, with active rebalancing, would have returned 165% over the same period.

Interest in volatility products has been mixed, with only four out of ten such products seeing inflows this year. The 1x Short VIX Futures ETF (SVIX) has attracted around $100 million, while the total assets in these products amount to about $2.5 billion.

JPMorgan, which manages over 60 ETFs in the US, has just one other ETN currently trading, according to Bloomberg data.

Paraphrasing text from "Bloomberg"all rights reserved by the original author