All of the volatility based ETN/ETF products are relatively new. Barclays’ VXX and VXZ oldsters started in January 2009—just a few months before the end of the 2008/2009 crash. This lack of historical data over full market cycles makes it hard to assess the risks associated with new products—such as VelocityShares’ ZIV (medium-term inverse volatility) which started in November 2010. test
I have backtested ZIV starting from March 2004, including the impact of fees and treasury bill interest. The results for this presumably tamer inverse volatility ETN, are shown below.
I was surprised at how volatile, and how low this hypothetical ZIV went during the recent bear market—losing 80% of its value from 2007 to 2008. ZIV appears to be a bull market only instrument and not suitable for buy and hold. For one approach to timing investments in inverse volatility see Taming Inverse Volatility with a Simple Ratio.
If you are interested in obtaining the full simulation results for ZIV back to 2004 see Backtests For Popular Volatility ETPs.
- How Does VelocityShares’ ZIV Work?
- Backtests for Popular Long & Short Volatility Exchange Traded Products
- Sometimes Inverse / Leveraged Volatility Funds Outperform Their Leverage Factors
- Taming Inverse Volatility with a Simple Ratio
- Inverse Volatility—the Winner for Short Term is SVXY
First posted: Thursday, June 30th, 2011 | Vance Harwood