VIX ETF Score Card
In the past 6 months there has been an explosion in the popularity of several of the Volatility (VIX) ETF products. Let’s take a look at the winners and losers strictly from the standpoint of Average Daily Volume, NOT Performance.
As you can see the big winner was iPath’s VXX which has seen it’s average daily volume quadruple to 21 million shares in the last 5 months. iPath also had a nice gain for their mid-term futures product VXZ which grew by more than 60%. Other notable winners were a couple ETFs from VelocityShares the fastest growing being TVIX which is a triple leveraged Short Term VIX ETF which saw it’s daily volume go from 43,730 to 523,638 so an increase of nearly 1100%.
VelocityShares also had a winner on the inverse side with their XIV ETF which trades inverse to the rise and fall of the VIX. This contract increased in daily trading volume from 26,423 to 120,860 which was a 357% increase. This growth pulled some of the volume out of the iPath inverse product XXV whose average daily volume dropped by more than 50% to just over 83,000 shares.
If you look at the long term trends of the volatility ETFs you can see they tend to go down 90% of the time so other than the occasional volatility spike the XIV may be an interesting way to capitalize on persistent volatility trends.
Over the past 5 months XIV has been the best performing Volatility ETF as volatility has fallen to the bottom end of the range. You can see how dramatically it has outperformed XXV (iPath inverse) which would explain the success of the instrument.
The worst performing of the active volatility ETFs is TVIX which makes sense as it’s a 3X leveraged ETF that is long short term volatility. Products like this are designed for short term trading, not for being held as portfolio insurance.
With all the uncertainty in the markets there is little doubt that volatility based ETF products will continue to find adequate levels of investor interest. The strong will get stronger.
