“2011 will mark the rise of volatility as an asset class. Part of the reason for this rise will be the runaway success of VIX-based ETNs and ETFs, notably the recently launched XIV, which will prove that volatility vehicles can be good buy-and-hold investments.”
During the course of its first six months of trading, XIV has managed to return 82% to anyone who was fortunate enough to buy some of this ETN when it launched. As shown in this week’s chart of the week below, XIV ride has been a wild one and has included a pullback of about 33% in one month during all the turmoil associated with the Japanese earthquake + tsunami + nuclear meltdown.
Looking ahead, I am going to go out on another limb and say that 82% in six months was not a fluke. Sure XIV is an extremely volatile security that will experience sharp drawdowns on a regular basis, but for the patient investor who is able to steer clear of margin issues, XIV can be an excellent way to spice up one’s portfolio with stunning long-term returns.
That being said, just as shorting VXX is a strategy suited to only a small slice of the investment community, so is XIV not appropriate for everyone, in spite of the upside potential. For those who think they may be up to the task, I highly recommend a comprehensive risk management plan and a review of Managing Risk with a Short VXX Position, as well as some of the other links below.
- Managing Risk with a Short VXX Position
- Ways to Turn Volatility into an Asset Class (Barron’s)
- VIX and More and the 2011 Bespoke Roundtable
- Impressive Launch for Sextet of New Volatility ETNs from VelocityShares
- VelocityShares Jumping in to VIX ETP Space with Leveraged and Inverse Products
- Why VXX Is Not a Good Short-Term or Long-Term Play
- VXX Calculations, VIX Futures and Time Decay
- VXX Monthly Performance
- Chart of the Week: VXX Celebrates One Year of Futility
Disclosure(s): short VXX and long XIV at time of writing