Thursday, November 8, 2012

Performance of VIX ETPs During Current Pullback

Of all the issues discussed in this space, undoubtedly the one that captures the imagination of most readers is the subject of VIX-based exchange-traded products. I get more questions about the construction of these products, how they respond to the VIX futures term structure, what factors influence performance, etc.

For these reasons I thought it might be instructive to update my VIX ETP landscape chart and include performance data from the September 14th market closing high of SPX 1465 to today’s close of SPX 1377. During that period, the SPX declined 6.0% on a close-to-close basis, while the VIX jumped 27.4% during the same period.

So how did the VIX ETPs fare while the market was selling off?

In examining the graphic below, the first thing you probably notice is that only 5 of the 19 VIX ETPs were able to manage gains during the selloff. In fact the average (mean) VIX ETP performance was a disappointing -4.9%, while the median return was -6.7%. Even more interesting, the inverse volatility products actually outperformed their long volatility counterparts and had the top performer of all, the VelocityShares Daily Inverse VIX Medium-Term ETN (ZIV).

In addition to the static allocation long and short volatility ETPs, there are also three products that use rules-based formulas to dynamically allocate the amount and type of long volatility exposure: VQT, XVZ and VIXH. None of these three products was able to produce a profit during the selloff and the top performer among the group, VQT, managed a loss of 3.4%.

I previously superimposed performance data on this same VIX landscape graphic back on April 3rd in VIX ETP Returns for Q1 2012, following a 12.0% gain in the SPX during that quarter and a 33.8% drop in the VIX. Note that only two VIX ETPs managed to post gains during the bullish first quarter and the selloff of the past eight weeks: ZIV and IVOP. If anyone wonders why I never bother to mention IVOP, first off it has only traded on three days during the past month and second, it has a participation of only 0.13, which means essentially that the portfolio moves as if only 13% of the assets were invested in the underlying index and the balance remained in cash.  As for ZIV, I have been all over this one, including a feature post, ZIV Undeservedly Neglected, back in January.

Now that VIXH has been added to the mix of VIX ETPs, I will endeavor to provide performance updates on some or all of the VIX ETP product space on a more frequent basis going forward.

In the meantime, for those who are in search of reasons why some of the VIX ETPs outperform their peers in various market regimes, the links below are an excellent place to begin your research.

Related posts:

[source(s): Yahoo]

Disclosure(s): long ZIV and XVZ at time of writing

blog comments powered by Disqus
DISCLAIMER: "VIX®" is a trademark of Chicago Board Options Exchange, Incorporated. Chicago Board Options Exchange, Incorporated is not affiliated with this website or this website's owner's or operators. CBOE assumes no responsibility for the accuracy or completeness or any other aspect of any content posted on this website by its operator or any third party. All content on this site is provided for informational and entertainment purposes only and is not intended as advice to buy or sell any securities. Stocks are difficult to trade; options are even harder. When it comes to VIX derivatives, don't fall into the trap of thinking that just because you can ride a horse, you can ride an alligator. Please do your own homework and accept full responsibility for any investment decisions you make. No content on this site can be used for commercial purposes without the prior written permission of the author. Copyright © 2007-2013 Bill Luby. All rights reserved.
 
Web Analytics