Backtesting VelocityShares’ ZIV inverse volatility ETN to 2004

Updated: Mar 10th, 2017 | Vance Harwood | @6_Figure_Invest

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) and XIV (short term inverse volatility) funds which started in November 2010.

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 and XIV appear to be bull market only instruments 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 and XIV back to 2004 see Backtests For Popular Volatility ETPs.

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