XIV ETF has almost doubled since it launch about half a year ago. If you invested in the beginning and made a lot of money - congratulations! But the big question is: can we expect the same excellent performance from XIV going into the future? To answer this question I look at the SPVXSP index - the underlying for both VXX and XIV for the last 5 years. I take the values of the index and simulate hypothetical performance for the ETFs (starting values normalized to 100)

While the last half-year for the XIV have been excellent, XIV had a huge drawdown losing over 80% of its value at one point. In the five years since June 2006 to January 2011 XIV was flat, and despite its excellent performance in the past half-year XIV still would not have recovered from the drawdown.

**There is obviously a lot of risk in XIV that recent history does not account for**. Geometric annualized return for the index (like-VXX) is -37.47%. Geometric annualized return for the daily inverse (like-XIV) is 12.77%

EDIT: See my new post on XIV.

Hi!

ReplyDeleteCould you explain how you did the XIV prediction?

Thanks

Can you please share the formula for

ReplyDelete1. index and simulate hypothetical performance for the ETFs

2. Geometric annualized returns for VIX and XIV

3. The chart spreadsheet/ raw data

Thanks

Great chart! The interesting thing to me is the huge decline of XIV in 2007. IF I am reading the graph right, it looks like XIV collapses from over 200 in early 2007 to under 100 by the end of 2007. It actually stays relatively stable for most of 2008 before collapsing again at the end of 2008. Of course up 8-10 fold since then.

ReplyDeleteAny further backtesting results would be greatly appreciated.

It would be wonderful if you would either provide the data or the method to calculate this graph ourselves. It seems historical data like this is totally lacking for these new and (for many) exotic ETNs.

ReplyDelete