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Battle of the Beasties

Which ETF is oddest? 

John Rekenthaler, 11/15/2013

Their two finalists were Winklevoss Bitcoin Trust and ProShares Ultra VIX Short-Term Futures ETF UVXY

It's an inspired duo. I'll go one step further. These are the industry's strangest funds, period. Not just for their risk factors, but also for their investment complexity and for the wackiness of their performance. 

Investment Complexity
Both funds score stunningly well here.

The Bitcoin Trust holds "a digital commodity based on an open source cryptographic protocol existing on the online, end-user-to-end-user network hosting the public transaction ledger, known as the 'Blockchain,' and the source code comprising the basis for the cryptographic and algorithmic protocols governing the issuance of and transactions in Bitcoins (the 'Bitcoin Network')."

For its part, the ProShares fund seeks to double the daily performance of an index that indirectly measures the collective expectation for the level of stock-market volatility over the next month. Per Wikipedia, VIX "is calculated as the square root of of the par variance swap for a 30-day term initiated today. Note that the VIC is the volatility of a variance swap and not that of a volatility swap." Noted.

There you have it. Two funds, each as natural as Donald Trump's hair and about as complicated. One fund rises and falls based upon the value of a currency that is supported neither by a tangible asset nor an entity that can raise revenue, and the other rises twice and falls twice based on the performance of an index that was built by mathematicians. A derivative of a derivative, versus a derivative of a derivative of a derivative.

Verdict: Narrow victory for ProShares. The ProShares fund goes one derivative further, and it's leveraged at that. Although for fancy math, its "kernel-smoothed estimator" can't touch Bitcoin's code creators.

Bitcoins' spot price over the trailing 12 months:

is vice president of research for Morningstar.

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