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).
Quick update on VIX ETP Products. By Vix and more.
Two thirds of 2012 passed before we saw the first new VIX-based exchange-traded product and it turned out to be an interesting one: the First Trust CBOE S&P 500 Tail Hedge Fund ETF (VIXH), which was introduced at the end of August. VIXH is essentially a portfolio consisting of 99-100% of SPY, augmented by a dynamic allocation of 0-1% of VIX options, with the amount of options determined by the level of the VIX at the beginning of each VIX expiration cycle. This is the first VIX-based ETP to included VIX options among its holdings and it is notable that this product bucks the recent trend and is an ETF instead of an ETN. There are other features of VIXH worth discussing and I will discuss these in future posts.