One of the most successful ways to invest in 2017 was to buy inverse volatility ETFs. The market's calm move upward throughout the year helped these investment vehicles, which thrive on a lack of choppy moves in stocks, produce incredibly strong returns. Yet when volatility levels spiked higher in early February, the resulting collapse caused massive losses that led one inverse volatility ETF to shut its doors.

Many investors didn't seem to understand the danger that they could lose everything by investing in inverse volatility ETFs. Yet as investors in the inverse volatility ETF ProShares Short VIX Short-Term Futures (NYSEMKT: SVXY) have discovered, there's another risk that exchange-traded fund investors have to deal with: changes in investment models that can dramatically change the way that a fund operates without having to get shareholder approval.

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A unilateral move from ProShares

Initially, ProShares said that the inverse volatility ETF's plunge of more 80% on Feb. 6 "was consistent with its objective and reflected the changes in the level of its underlying index." ProShares claimed that "we intend to continue to manage the fund as usual" going forward. At that point, it seemed as though ProShares was comfortable that its investors understood the risks of its volatility products and were prepared to keep using them in their investment strategies going forward.

Yet just three weeks later, ProShares changed its tune. In a press release, the ETF manager said that it would change the investment objective on its inverse volatility ETF. Rather than looking to track the inverse movements of an index tied to the S&P 500 VIX futures contracts on a daily basis, ProShares said that the fund would instead look to produce one-half of the inverse of those daily moves. For example, under the old methodology, a 10% move higher in volatility should have produced losses of 10% for the ETF. Going forward, ProShares would instead look to produce a 5% loss in that circumstance.

ProShares also made changes to one of its leveraged volatility ETFs. The ProShares Ultra VIX Short-Term Futures (NYSEMKT: UVXY) had looked to produce double the daily change in its target volatility index, but the fund manager said that going forward, the investment objective would be to produce 150% of the daily change instead.

What the changes did to investors

The changes were made with minimal notice to investors, as the press release on Feb. 26 discussed the changes effective at the close of business on Feb. 27. ProShares said that it would have to obtain certain regulatory approvals to make the changes permanent, but that didn't stop the company from moving forward immediately. ProShares argued that "it was in the best interests of the funds and their shareholders to promptly implement this change."