NYX Nyse Euronext

Investors who prefer exchange-traded funds over stocks, bonds or other instruments will be able to trade two ProShares ETFs tied to the stock market's "fear index" starting Tuesday.

ProShares is set to launch two funds that track futures on the CBOE Market Volatility Index, according to ProShare Capital Management Chairman and Chief Executive Michael Sapir. The launch is slated for NYSE Euronext's (NYX) Arca exchange Tuesday. The move marks the first time that ETFs tied to the fear index will trade in the U.S.

There are currently several exchange-traded notes tied to the index, also called the "VIX." Favored by short-term traders and those whose time frame for investing is measured in days rather than years, the ETNs have proliferated since the financial crisis and have seen volume grow in the past year. They are used to bet on, or hedge against, bursts of stock-market volatility.

Sapir said the new ETFs won't have the credit risk of ETNs, which are unsecured debt securities that depend on a single company's ability to pay up.

"We believe many investors will think, 'Why take on the credit risk of 100% of your investment when you can buy an ETF?'" Sapir said in an interview with Dow Jones Newswires. He said he was "very optimistic" that the products will draw investors who opted against ETNs because of the credit risk. He described the target audience as "sophisticated" investors.

The ProShares VIX Short-Term Futures ETF will track an index of one- and two-month contracts and trade under the symbol "VIXY." The VIX Mid-Term Futures ETF will track contracts several months out, with a "VIXM" symbol.

The ETFs will be tied to the same indexes as VIX exchange-traded notes like the iPath S&P 500 VIX Short-Term Futures ETN. That means many of the same features of those products will also be evident in the ETNs.

The ETNs are complex instruments. They "roll" positions into future months' contracts on a daily basis. This can have a profound impact on the value of the security. One of the most popular ETNs had a reverse four-way split in November, in part reflecting the impact of "rolling" futures contracts.

Sapir said the erosion of value from "rolling" contracts can also work in the other direction when the market shifts.

"The effect could continue, or it could go the other way. In recent times it has had a negative impact. But it could go either way," he said, advising investors to understand the products fully before buying them.

-By Brendan Conway, Dow Jones Newswires; (212) 416-2670; brendan.conway@dowjones.com

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