Backtesting VelocityShares’ ZIV inverse volatility ETN back to 2004

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.

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