Extended View of XIV vs ZIV


This is a follow up to Bill Luby’s excellent post comparing the performance of XIV (daily inverse VIX short-term ETN) versus ZIV (daily inverse VIX medium-term ETN).

Bill makes the point that mid-term ZIV has more or less performed in line with short-term XIV since inception at a fraction of the volatility/drawdown, but investors have yet to embrace the product.

To illustrate, XIV (red) versus ZIV (grey) since inception in 11/2010:

[logarithmically-scaled, growth of $1]

Below I’ve extended this comparison all the way back to 2006 (adding almost 5 years additional data) using the underlying indexes on which XIV and ZIV are based: the S&P 500 VIX Short (and Mid) Term Futures Index TR.

For the data prior to XIV and ZIV’s launch, I’ve simply flipped the daily % change of the index. That doesn’t precisely mirror how XIV/ZIV would have performed, but it’s going to get us very close (or at least close enough for this illustration).

[logarithmically-scaled, growth of $10,000]

This extended data confirms that ZIV would have exhibited considerably less volatility than XIV.

Drawdowns would have also been reduced, but I should note that it isn’t nearly to the degree that the only major drawdown in the first chart (late-2011) would suggest.

To illustrate, below I’ve shown a drawdown curve for short-term XIV (red) versus mid-term ZIV (grey) since 2006. To be as fair as possible to ZIV, I’ve calculated the drawdown based on the highest close of the previous 252-days (1-year) rather than since the beginning of the dataset.


Note how in long protracted drawdowns, mid-term ZIV would have bitten the dust almost as badly as short-term XIV.

I don’t personally trade much ZIV, but it seems to me that (liquidity aside) ZIV might make more sense for folks who take a more long-term view of volatility ETPs (like blindly following the VIX futures term-structure) as a way to reduce day-to-day volatility.

But I personally prefer the increased volatility of XIV.

While I recognize that I’m more exposed to short-term losses in a market crises (like late-2011), that increased volatility also provides more potential opportunity for a more short-term approach (shameless self promotion).

Happy Trading,

P.S. If you’ve just recently began trading XIV (or ZIV), have grown accustomed to rocket ship returns, and are confused by the incredibly ugly drawdowns in the charts above, you haven’t been paying attention.

. . . . .

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4 Responses to “Extended View of XIV vs ZIV”

  1. 1 Yu Feng

    It is better to use log scale for the draw down chart. In my view the difference is huge between 80% drawdown and 60% drawdown. 80% drawdown is the same as suffer a 60% drawdown fist and then another 50% drawdown. Just ask yourself how much return do you need to go from 80% down point to 60% down? You need 100% return.

    • 2 MarketSci

      Hello Yu – valid point. See log scaled DD curve:

      Not sure how to get the y-axis label to work in Excel, but you get the idea.

      Side note: I think the observation still stands though. ZIV has not been as successful at reducing drawdowns as the only major drawdown since the ETP launched (late-2011) would suggest.


  2. 3 David

    Have you compared ZIV to holding SPY? Just eyeballing it, seems like a very similar return/risk profile with slightly lower return and greater drawdowns. At least XIV has regained the all time high seen in 2007. If following the term structure offers some advantage over just buying SPY, I can only see that in XIV.

  1. 1 Wednesday links: invalid inferences - Abnormal Returns | Abnormal Returns

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