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Krystof Huang  

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  • Huntington Ecological Strategy ETF: Green Is Good [View article]
    I am currently modifying my "high gain" Covestor autotrading strategy from C2-GRO to C2-GRO-SRI: "Gain/Risk Optimized Socially Responsible Investing."

    Thank you for this 2015 discussion of HECO--so far the best medium-risk "socially responsible" ETF diversification beyond KLD. Before this, there were only two 2012 HECO SA discussions. By Michael Jonston: And by Tom Konrad:

    I believe we can count on KLD to efficiently mimic S&P 500 performance. After studying the performance and all of these discussions--HECO seems likely to slightly underperform KLD--but not by much--and allows us to give some extra boost to "low carbon" energy. Meanwhile, from a sheeer profit perspective, KLD + HECO provides some diversification without adding inordinate risk.

    However, my primary caveat: DO NOT USE TIGHTS STOPS WITH HECO because spread can be very high shortly after the markets open. Trade manually and when spread is low. HECO spread is usually low, no problem. Instead of Stops, configure an email-to-cell phone message to notify you when KLD sells or when HECO drops.

    Although I like the idea of green investing--I was shocked to find that green energy funds are so high-risk that their volatility does not resemble anything normal, but compares only to levereaged ETFs. To see what I mean, just view a Max graph for TAN.{%22useLogScale%22:tr...

    TAN, QCLN, BPW, PUW are obviously too high-risk for the average investor. GIVE is similar to HECO--but not as good on performance--and so new that bid and ask are not yet showing on my trading platform. Only KLD and DSI effectively mimic the S&P 500. And DSI does not screen for guns, drugs, GMOs or pornography. And DSI does not provide a true diversification because it has the same custodian as KLD (iShares).

    So, my new GRO-SRI strategy suggests 20% in KLD, 20% in HECO, 20% in ZIV, 20% in SVXY, 20% in gold (divided among GLD, OUNZ, SGOL). I also hold 20%-30% in short-term TIPS on-margin. (Feasible at Interactive Brokers and Options House where margin is low.) The Stops on ZIV and KLD will also trigger the purchase of 10% more gold plus 25% in the hedge PHDG. Thus reducing reliance on minimally-insured cash in the event of another 2008-level meltdown.

    Of course, I might modify this strategy. I intend to do long-term simulations and post resulting do-it-yourself suggestions on Seeking Alpha.

    ZIV, SVXY and PHDG are primarily derivative-based--not low-risk and not "socially-responsible." However, they are arguably no more "socially irresponsible" than computer chips. Also, they create the possibility of above-average performance. ZIV and SVXY generally magnify the ups-and-downs of the S&P 500. Therefore, GRO-SRI followers must expect more severe downturns than average. However, the GRO-SRI strategy enables investors to meet their goals while decreasing total market investments--and increasing the cash or TIPS in a separate account--therefore placing less money at-risk. Also, it is the use of market-magnifiers that enables you to increase ultra-secure gold to 20%-30%. Because gold usually does not go down unless stocks are going up.

    However, if you prefer "average" performance and risk, simply reduce gold, ZIV and SVXY to 10% each. PHDG can be left out. Thus becoming 80% "socially responsible" and 20% "non-irresponsible."

    “Socially responsible investing” is a healthy direction–but must be broad-based in order to avoid huge risks. This means investing in everything from paper clips to computer chips. This does nothing to reduce the proliferation of guns and high-pollution vehicles. However, the high-risk narrow-based strategy of investing in pepper sprays and low-pollution vehicles will not necessarily make a significant long term difference either--especially by isolated individuals.

    I believe the best "socially responsible" plan is to invest cautiously in broad-based US-based “socially responsible” equity ETFs (KLD, HECO)–maintain Stops to limit losses–and donate to Greenpeace–and just hope that something unexpected happens someday. (I am now working on a detailed SA article about this as well.)
    Oct 6, 2015. 12:07 PM | Likes Like |Link to Comment
  • Huntington Jumps Into ETF Game With EcoLogical ETF [View article]
    My primary caveat is beware of HECO spread, can be very high during opening hours.
    Oct 6, 2015. 10:35 AM | Likes Like |Link to Comment
  • An Actively Managed Green ETF: Huntington EcoLogical Strategy [View article]
    Thank you for this focused 2012 discussion of HECO. As of October 2015, HECO seems the best medium-risk "socially responsible" ETF diversification addition to KLD. My primary caveat is beware of HECO spread, can be very high during opening hours.

    Another good 2012 HECO discussion is by Michael Jonston:

    I will post my detailed October 2015 comments under the latest--and so far the only other--focused SA HECO discussion by Accendo Markets:
    Oct 6, 2015. 10:25 AM | Likes Like |Link to Comment
  • Huntington Jumps Into ETF Game With EcoLogical ETF [View article]
    Thank you for this focused 2012 discussion of HECO. As of October 2015, HECO seems the best medium-risk "socially responsible" ETF diversification addition to KLD.

    Another good 2012 HECO discussion is by Tom Konrad:

    I will post my detailed October 2015 comments under the latest--and so far the only other--focused SA HECO discussion by Accendo Markets:
    Oct 6, 2015. 10:25 AM | Likes Like |Link to Comment
  • 10 Best Gold ETFs And Perspectives [View article]
    August 2015 updates.

    1. I am now more strongly in favor of trend-trading in silver mines than before--if buy-rated by several major analysts. Trend-trading can limit the downside and silver mining has a more certain upside potential than most investments, regardless of managerial innovation or competitiveness. Also the possibility for low long-term US tax rates.

    2. However, I am more strongly against gold mining even if trend-traded--because trending in silver mining has higher potential--and also more chance of undervaluing because there are more silver mines monitored by major analysts. Also gold mines are petering out over the next few decades. Gold will shoot up but gold mining is uncertain.

    (Please note that it is risky to invest in any company that is not monitored by major analysts. Firstly you can be less certain of the accuracy of your data. Secondly even if your data is accurate, you can be less certain that enough other investors will learn about the company for a substantial and sustained increase in share price--if major analysts are not touting the company. For similar reasons, I also generally prefer broad-based index ETF investing vs. individual stocks--but silver mining is an exception because there is no question about the long term desireableness of the product.)

    3. I am also more strongly against platinum and palladium than before. The long-term potential is high, but due to the reliance of their value on catalytic converters, they are certain to fall severely during financial downturns.

    In the recent August 2015 downturn, I held 1/10 as much platinum-palladium as gold. My gold successfully went up to hedge the downturn--but my platinum-palladium lost almost the same amount--thus sabotaging the hedge effect of gold--even though only holding 1/10 as much platinum-palladium as gold. That was the last straw. No more platinum or palladium for me.

    You can also trend-trade platinum or palladium--but no possibility for low US tax rates. Silver mining is the way to go for US-based trend-traders.
    Aug 28, 2015. 07:41 PM | Likes Like |Link to Comment
  • Which VIX Spike Could Kill XIV? Here Are The Numbers. [View article]
    I am now more in favor of XIV/SVXY than before. Previously, I was against encouraging the average investor to use XIV/SVXY. However, as of June 2015, my conservative strategy SN-SOS now suggests 12.5% SVXY and 12.5% ZIV. Because using ZIV alone, the total account gain was not able to keep up with the S&P 500, while also having the safety features of Stops and 25% in short-term TIPS (=cash).

    Regarding the above question about a "futures curve"--I do not do advanced Options trading, so do not know if this might apply. However, just like to say that I have found that trend-trading leveraged products sometimes does better by following the exact opposite rules as with unleveraged products. I.e. sometimes you can do well by selling on every "buy" signal and buying on every "sell." Therefore, be wary of applying any conventional rules to SVXY which behaves as if leveraged.

    Also, presents a method of only holding ZIV or XIV during the most advantaged times. I decided not to use this because it seems to reduce overall gains similarly to simpler trend-trading. However, an Options trader might want to consider it.
    Jul 29, 2015. 03:55 PM | Likes Like |Link to Comment
  • Are VQT And PHDG Investments Or Hedging Tools? [View article]
    Some changes in my views on PHDG and VQT. (Also discussed in my July 2015 article: "Relatively Secure US Intesting Amid Relatively Insecure Greece, EU and China." )

    * I now do not suggest VQT at all. (I am uncertain however about the comment above by Kuhlow: he says that VQT can be "more tax efficient"? To my understanding, VQT is always 100% derivative-based = short-term regardless of how long it is held. Can someone please explain?)
    * For most investors, I now suggest using PHDG only as a hedge, only during downturns.
    * For all investors, I suggest against ever holding more than 25% in PHDG.

    Re VQT. I now believe it is never prudent to hold more than 25% PHDG or VQT--because neither is a high security position. And if the derivative custodian declares bankruptcy--as happened to a Lehman derivative ETF in 2008--with VQT we risk a -100% permanent loss and with PHDG we risk a -20% permanent loss. And for market-inverse hedging effect, it is best to diversify between PHDG/VQT, gold, TIPS and Stop orders. There seems no significant reason to add VQT to this list.

    Also, PHDG has done poorly for the first 6 months of 2015: -6% vs +3% for the S&P 500. More importantly, lack of gains during downturns. Consequently:

    My high-security strategy SN-SOS no longer holds PHDG full-time, but only during downturns. The normal SN-SOS allocations are: 50% equity ETFs, 25% high-gain derivatives ZIV & SVXY, 30% short-term TIPS ETFs. (Short-term TIPS are a high-security cash-like position which never gain or lose much.)

    My hi-gain strategy SN-GRO continues to hold usually: 25% equity ETF, 50% ZIV & SVXY, 25% PHDG, 30% short-term TIPS.

    (SN-SOS and SN-GRO thus hold 5% to 30% TIPS on-margin. However, I only suggest margin usage if using Options House or Interactive Brokers which have much lower margin rates than all other brokers.)

    Both SN-SOS and SN-GRO use Stops to sell equities and ZIV and SVXY during downturns--and then temporarily buy up to 30% gold divided between 2-3 gold ETFs.

    I.e., with SN-SOS--holding 25% PHDG was making it difficult to keep up with the S&P 500 during sideways or bull markets. Furthermore, PHDG is not a high-security position. So, for SN-SOS, it seems better to hold 25% short-term TIPS--and only buy PHDG during downturns.

    With SN-GRO--which holds 50% in ZIV and SVXY and is not a high-security strategy--the loss periods and the security concerns for PHDG become inconsequential. Also, SN-GRO can be converted into a high-security strategy by allocating 50% SN-GRO + 50% TIPS ladder.

    The downsides for SN-GRO are (a) high level of short-term tax rates, (b) SN-GRO will not be "well-behaved." The eventual gains for SN-GRO might be several times greater than for SN-SOS or the S&P 500--but there will certainly be 9-month periods of darkness, struggling to make up for a severe loss caused by a minor downturn.

    In contrast--SN-SOS can be seen week-by-week usually to remain close to the S&P 500. With SN-SOS--which uses PHDG as a hedge-only--the average investor will be able viscerally to "see" if he or she is "doing alright"--relative to the S&P 500.

    So, in answer to the question of this article...

    Q. "Are VQT And PHDG Investments Or Hedging Tools?"
    A. They are Hedging Tools. Because if you invest entirely in VQT or PHDG you might end up with no significant gain after 10 years--if during that time the market never went down both significantly and promptly. Also, because of that, usually they are best used only temporarily during downturns.

    PHDG/VQT can make sense as a full-time "investment" positions if you hold large high-gain positions and are unconcerned with steady progress relative to the S&P 500.

    However--for most investors--in my personal opinion, PHDG should be considered only as a "hedge" position because it should only be held temporarily during stock market downturns. Furthermore, PHDG is secondary to gold which is more secure. I.e. I would not suggest buying 25% PHDG until first converting another 50% of account to gold-and-TIPS.

    PHDG vs gold which also hedges the market. PHDG technically has less "price risk" than gold because PHDG can gain during both bull and bear markets and reacts directly to the market, not depending on popularity of a commodity. However, we have just experienced a 6-month period during which PHDG lost -6% and gold lost -3%. Also, if only held temporarily during market downturns, then any difference in "price risk" is probably not very significant. Therefore, a win-win for gold if held downturn-only.

    Why use PHDG at all? Basically, for diversification.

    Firstly, I would caution against ever holding more than 30% of account in gold ETFs, divided between 2-3 different ETFs. Secondly, PHDG is specifically programmed to generate high profits during a severe downturn--gold less certainly. Also note that during downturns, both SN-SOS and SN-GRO end up with 25% PHDG, 30% TIPS, 30% gold, 15% cash. I.e. during severe stock market downturns--which is perhaps the only time that PHDG might declare bankruptcy--my PHDG strategy limits your total market risk to 25% of account value.

    Metaphorically speaking: PHDG is like a throw of the dice that bets on a severe market downturn. Six times out of ten, you can expect the market will pop back up and you will lose a bit. Three times out of ten, you will win a bit. Therefore on the whole, you break even. However, one time out of ten, the market will tank severely and then PHDG will win seriously at the most valuable time.

    During downturns, each +$1 gained = +$2 more than average (the "average" being -$1) This later equals +$6 because of high gains in every rebound period. I.e., while most investors are struggling to break even, you have money to invest and are profiting seriously on the rebound. I.e. the biggest profits from hedging the market are not directly from the hedge but on the rebound. This is the value of PHDG which, in my opinion, is worth the slight risk of holding 25% in PHDG at the most risky time.
    Jul 17, 2015. 01:09 PM | 1 Like Like |Link to Comment
  • How Does VelocityShares Daily Inverse VIX Short-Term ETN Work? [View article]
    After several more months of thought and experience--I now feel obliged to summarize clearly just how much we owe to Mr. Harwood's research for pointing out just how dangerous as well as lucrative that inverse-VIX ETFs can be.

    * According to Mr. Harwood's research, ZIV and SVXY/XIV both would have lost about -90% during 2008--i.e. virtually everything.

    * Also--thanks to the "flash-crash" phenomenon--and to the increasing impact of less-regulated Asian markets operating on a 12-hour difference--it is possible that the next 2008-level recession could enfold overnight or within seconds.

    * Also, it is quite possible that sometime in the future, we will experience a 20-year period during which there is a minor 2011-level recession every few years and no huge bull runs. In such a case, ZIV and SVXY/XIV could repeatedly be losing severely and then struggling to break even.

    * Also--unlike equity-based ETFs--the value of derivative-based ETNs might evaporate completely due to the bankruptcy of a single underwriter or custodian. (Such as happened to Lehman in 2008 and could have happened to many more financial pillars if not for the 2008 bailouts.)

    * In any case, there will certainly be future times when--for years and perhaps decades at a time--in addition to suffering intermittent extreme losses, ZIV and SVXY/XIV will ultimately not outperform the best equity ETFs.

    * However, the flip side of this equation is that--if you can withstand the losses--then it is extremely likely that ZIV and SVXY/XIV investments will sooner-or-later perform at least as well as the best equity ETFs. I.e.--if you can withstand the losses--it is reasonable to hope for at-minimum the same as the best equity ETF in the long run--and of course possibly many times more.

    * Also, the success of ZIV and SVXY/XIV does not ultimately depend on the sale of computers or any product or the success of any company or nation or economic sector. The success of ZIV and SVXY/XIV is instead based on relentless mathematical probabilities similar to the advantage of a casino operating a roullette wheel.

    I.e. even if SPY eventually has a downfall from which it never recovers--and even though ZIV and SVXY/XIV are fundamentally tied to the performance of SPY--and yet in theory, ZIV and SVXY/XIV eventually will recover even if SPY does not recover. This would certainly take some time. Nonetheless, emotional stress is a significant part of investing. Inverse-VIX ETFs will create high levels of stress with their ups-and-downs. At the same time however, you also can have an unusually high level of confidence that "someday this investment will recover."

    In conclusion, in my opinion, the average investor in ZIV and SVXY/XIV should give foremost consideration to the following two suggestions:

    1. Always maintain Stop orders for inverse-VIX ETFs.

    With inverse-VIX ETFs, there is a high probability that Stop orders someday will save you from a high loss. In addition, the use of Stop orders can be seen as a type of trend-following. The tendency of inverse-VIX ETFs to "lose quickly and rebound slowly" makes them ideal candidates for trend-following.

    Usually, the problem with trend-following or Stop orders is that the best gains usually occur shortly after the worst losses. With ordinary equity investments, if you fail to reinvest promptly after losses, you could end up missing out on any significant gains.

    In contrast, with inverse-VIX ETFs, there will continue to be phenomenal gains whenever the market continues to do well at all. Therefore, you have proportionally much less to lose by closing your inverse-VIX ETFs whenever the market seems shaky.

    2. Do not invest very much in inverse-VIX ETFs.

    In my opinion, if only investing 5% of savings in ZIV and 5% in SVXY, then the benefits are probably much greater than the risks. There is then only a small amount at-risk and which is likely to add 100% of its value to a portfolio as it is rebalanced-down to 5% during gain periods. Also, as the portfolio is rebalanced-up to 5% during loss periods, this in turn makes rebounds faster and proportionally more lucrative.

    For simplicity and ease of management, my website currently suggests strategies which include 20% to 25% ZIV and does not mention XIV or SVXY. As stated before, I strongly believe that the average investor who does not totally understand inverse-VIX ETFs need not and should not consider XIV or SVXY.

    However, investing 20% to 25% in ANY combination of inverse-VIX ETFs--such as suggested on my website--assumes that the investor either has a very small amount of savings and a high need for growth--or that the investor will hold substantial savings outside of the strategy in US Treasury TIPS.

    Otherwise, investing a total of 20% to 25% of savings in any combination of inverse-VIX ETFs might be feasible but could become questionable for the risk-averse investor. And everyone certainly should think twice before investing any more than 20% to 25%. And to be most sure of staying within one's comfort level, keep SVXY/XIV down to 5% and the total down to 10%.
    Nov 30, 2014. 02:13 PM | Likes Like |Link to Comment
  • The Unintended Consequences Of Hedge Fund Fees [View article]
    Update: I have given up on the idea of operating small hedge funds. Instead I am building autotrading systems at Covestor and Collective2.

    However, most autotrading systems are designed to be high-risk and cannot be recommended--except perhaps for millionaries who want to take big risks with relatively small amounts of money.

    Nor is it necessary for anyone to use my autotrading systems. These are basically portfolios of high performance ETFs such as XRT, GURU, ZIV, SVXY and PHDG. In my opinion, simple combinations of these ETFs can make traditional mutual funds and hedge funds obsolete, as follows:

    * ETFs can follow indexes with well-established performance records
    * ETFs have well-regulated custodians
    * ETFs do not require entrusting large amounts of money with any single corporation or any single management.
    * In addition to hedging with a simple buy-and-hold on PHDG--which is 18% derivative--simply maintaining Stop orders on other ETFs might partially protect from a sudden stock market crash with no dependence on derivatives.

    After I have more live data as well as the time for some backtesting, I may post a Seeking Alpha article which describes how anyone can build do-it-yourself hedge funds using ETFs. Meanwhile, I simply suggest that anyone interested can surf Seeking Alpha for articles about the above-mentioned ETFs.
    Nov 25, 2014. 10:40 AM | Likes Like |Link to Comment
  • Which VIX Spike Could Kill XIV? Here Are The Numbers. [View article]
    p.s. I do not wish to leave the impression that I have endorsed holding 1/2 of account value in PHDG. I have decided that PHDG is not so perfect as to justify holding 50% of account, nor for holding 25% on-margin, even for a small-allocation high-gain strategy. The "Ezekiel Wheel" strategy mentioned above has been renamed "SN-GRO Gain/Risk Optimizer" and now consists of: 1/4 favorite equity ETF, 1/4 SVXY, 1/4 ZIV, 1/4 PHDG. (No margin.) Trailing Stop-sell orders are suggested for all except not PHDG.
    Oct 6, 2014. 05:48 PM | Likes Like |Link to Comment
  • How Does VelocityShares Daily Inverse VIX Short-Term ETN Work? [View article]
    Just like to say that I have decided since everything is fallible, it is not a good idea to hold more than 25% of an account in PHDG. Based on the advice of friends, I have also changed the name of my "Ezekiel Wheel" strategy to "SN-GRO Gain/Risk Optimizer." So SN-GRO now holds: 1/4 favorite equity ETF, 1/4 SVXY, 1/4 ZIV, 1/4 PHDG. (No margin.)

    Also, although I am equally enthusiastic about PHDG/VQT as those who have endorsed it above--I would just like to clarify that:

    * PHDG/VQT does not always gain when other investments lose.
    * During severe S&P 500 downturns, PHDG/VQT has consistently gained very significantly--but only enough to make up for about half the losses of an equal value of a standard equity ETF.
    * The gains of PHDG/VQT during downturns will not much make up for the big losses of ZIV or SVXY. It is much more significant just to maintain trailing Stop-loss orders for ZIV or SVXY.

    A moderate amount of PHDG/VQT can be considered as equivalent to a cash or bond position because it seldom gains or loses much. In addition, PHDG/VQT is designed to pop up in value when the S&P 500 severely pops downward. PHDG/VQT is a uniquely win-win investment. In my opinion, PHDG/VQT should only be buy-and-held, not trend-traded.

    Also, if for example your other investments lose -50%, then for every $1 you do not lose, you can expect to gain $2 on the rebound. So PHDG/VQT might be considered a high-gain ETF because--even though its gains are moderate--it gains at a time when the gains are most valuable.

    Nonetheless, holding a lot of PHDG on-margin might not be a good idea. Non-margin PHDG will tend to reduce overall portfolio losses because it tends to lose less than other investments even when it loses. However with on-margin PHDG you lose the equivalency to holding a large cash position, and any losses in PHDG will be felt significantly. So adding trend-trading to a strategy seems to me preferable to holding on-margin PHDG,
    Oct 6, 2014. 05:21 PM | Likes Like |Link to Comment
  • How Does VelocityShares Daily Inverse VIX Short-Term ETN Work? [View article]
    Thank you, Mr. Harwood. It looks like my eyeball estimates were close. I said -80% for ZIV and -90% for XIV/SVXY. I was just speaking loosely when I said 2008. The so-called 2008 recession was actually 2008-09 for equities and apparently 2007-08 for these inverse-VIXens.

    Yes, it is interesting that the VIXens fall much faster and rebound much more slowly than equities. I believe that a Call-buy routine on equity ETFs can be fundamentally superior--in terms of similar gains plus slower downturns and faster rebounds.

    Also, as your writings mention, the inverse-VIXens do not correlate directly with VIX. For example, if in 2011 I had bought SVXY as soon as VIX went above 14--originally I supposed that I was sure to show a profit as VIX inevitably fell back below 14. Then studying the history, I saw that this was not so.

    However, ZIV and XIV/SVXY can use Stop orders much more efficiently than Call-buying. And unlike Call-buying which requires expertise in overcoming the premiums--the successful use of VIXens does not require special attention to contango, backwardation or anything else.

    Indeed, the fact that VIXens fall quickly and rebound slowly makes simple trend-following more efficient. However, this advantage is likely to be negated by the extreme volatility for XIV/SVXY, which behaves very much like an inverse equity ETF: a trend is often over before it begins. For XIV/SVXY, following a trend will usually put you on the wrong side of the trend. And it is even more dangerous to counter-trend or "buy more when losing." This may inevitably cause you to lose your shirt when, as in 2007 and 2011, a downtrend is unusually sustained.

    Therefore--as Mr. Harwood and others mention above--a "constant dollar" approach may be the best we can do with XIV/SVXY. However, although trend-following will be extremely frustrating in the short term, it will work somewhat for XIV/SVXY in the long term--and will work much more consistently (or "less inconsistently") for ZIV. This is another reason that I suggest only ZIV for the average investor.

    However, I make an exception in saying that any corporate bond allocation might be replaced with 10% ZIV, 10% SVXY, 80% TIPS (short-term or ideally a ladder). In this case, it is definitely best to combine ZIV and SVXY. Firstly you might only lose 10% if either custodian implodes. Secondly there are often times when one of them is doing very well and the other is sluggish. Thirdly you need not flinch in adding more to such a small amount of SVXY when it needs it the most--thus converting volatility into gains. This "constant percentage" approach is a variation of the "constant dollar" while also enabling constant growth.

    Ironically, any financial adviser who suggests 10% XIV + 10% SVXY + 80% TIPS for a low-risk client is at-risk of lawsuits or losing his license if XIV and SVXY implode. Even though this only costs -20%--and even if it has already added several times that to the portfolio. Whereas the adviser who dishes out 100% corporate bonds and dividend stocks will be defended by convention--even if 2008 happens again, except major underwriters are not bailed out and his client loses -100%.
    Sep 29, 2014. 11:42 PM | 1 Like Like |Link to Comment
  • How Does VelocityShares Daily Inverse VIX Short-Term ETN Work? [View article]
    P.S. After thinking more deeply thanks to Windwine--I must retract my doubts that XIV/SVXY could have rebounded more quickly than ZIV after 2008. Nonetheless, I still think that ZIV is far preferable for the average investor.

    Looking again at Mr. Harwood's simulations: it seems that in 2008 XIV/SVXY would have fallen about -90% and ZIV about -80%. This makes sense because these are both extreme-volatility products and 2008 was an extreme situation. Therefore as we approach the maximum possible loss for both (-100%) then there must be less difference in the degree of loss.

    Also, XIV/SVXY certainly has much higher gain potential during rebounds. Therefore--with both ZIV and XIV/SVXY losing similar amounts in 2008--it does make sense that after the extreme situation of 2008, XIV/SVXY would break even more quickly than ZIV.

    Nonetheless, we can also say that in spite of this, ZIV did not do much worse over the entire 2008-2014 crash-rebound cycle than XIV/SVXY. For both, if there is another 2008-level crash, we can only hope that the use of Stop orders and the rebalancing to a small allocation size are likely to minimize the damage and maximize the rebound gains.

    Therefore, ZIV and XIV/SVXY can be considered roughly equal during a 2008-level crash. Also, we do not know whether a 2008-level crash will happen again in our lifetimes. Whereas a 2011-level downturn is certain to happen repeatedly.

    Also--regardless of what trend-following method you use--you can expect trend-following to lessen the downturns for both ZIV and XIV/SVXY. However--regardless of what trend-following method you use--you can also expect frequently to rebuy on an upturn only to plummet severely the next day. And this will happen much more often and be much more severe for XIV/SVXY than for ZIV.

    Therefore, the ultimate score can only be one draw per dozens of wins in favor of ZIV, for ZIV vs. XIV/SVXY in terms of being less-scary for the average investor. Also, we might expect trend-following to lessen the severity of downturns which is the prime cause of underperformance for both products. If so, there seems little need to be concerned that ZIV might underperform.
    Sep 28, 2014. 08:30 PM | Likes Like |Link to Comment
  • How Does VelocityShares Daily Inverse VIX Short-Term ETN Work? [View article]
    Thank you for the in-depth insights, Windwine. I have noticed ZIV and XIV/SVXY behaving strangely over short periods. Now you imply that this can happen over long periods. In any case, they certainly behave very differently. Therefore there are benefits to mixing them for diversity.

    I manage two autotrading strategies. "C2-SOS," a security-focused strategy, holds 20% ZIV and 10% SVXY. "Ezekiel Wheel," a growth-focused strategy, uses 125% leverage as follows: 1/4 ZIV, 1/4 SVXY, 1/4 favorite equity ETF, 1/2 PHDG. (PHDG is the same as VQT except that PHDG normally holds only 18% derivatives. I learned about VQT thanks to Harwood, Piard and TriniIndi.)

    My latest strategies are based on the premise that every corporate investment should be considered high-risk--and that the most sure way to control risk is to minimize the amount at-risk.

    For example, instead of investing $10,000 in corporate bonds or annuities, I would prefer to combine $1,000 ZIV, $1,000 SVXY, $8,000 short-term TIPS. The total long-term performances may be similar. Meanwhile, only 20% of principal remains at-risk.

    In the next 2008-level recession, there may be no bailouts. And if Enron, Goldman Sachs, Lehman, AIG, General Motors, etc. etc. can go bankrupt, then the bonds and annuities of any so-called blue-chip corporation or underwriter also can go bankrupt. If you think such concerns are passé, google-up "the defanging of Dodd-Frank."

    Nonetheless, including only 10% to 20% ZIV in a portfolio is powerful enough to exceed the expectations of most investors. While on the other hand, ZIV is so volatile that suggesting ZIV to a less-than-savvy friend or neighbor places you at-risk of creating an unhappy camper. And there is no question that the downturns of SVXY will be two or three times worse than ZIV. So in a nutshell, so long as ZIV exists, there might not be much point in mentioning XIV/SVXY to the average investor.
    Sep 28, 2014. 05:50 PM | Likes Like |Link to Comment
  • How Does VelocityShares Daily Inverse VIX Short-Term ETN Work? [View article]
    I would just like to summarize what I have learned about ZIV and XIV thanks to Mr. Harwood's articles here and on his website, which is a key source for information on VIX products.

    The 2008 downturn for the S&P 500 lasted about 5-1/2 years: October 2007 to March 2013.

    Based on the chart above, XIV would have taken 6 years to break even from the 2008 crash: March 2007 to about March 2013. However, as I am about to explain, this could be misleading. (Unless perhaps I am misreading something myself.)

    Also based on Mr. Harwood's simulations, ZIV could have taken about 7 years to break even: March 2007 to about June 2014. The simulation only runs until September 2013. However, in the simulation, ZIV was at about -50% down from peak in November 2012. I then add the data from that ZIV gained 100% from November 2012 to June 2014.

    However, there might be some discrepancy. According to, ZIV gained just over 200% from a valley on November 28, 2011 to the end of Mr. Harwood's graph in September 2013. Whereas Mr. Harwood's graph seems to show about 300% gain for ZIV: from a little more than 10 to a little more than 30.

    Also, if we start at the end of Mr. Harwood's graph on September 17, 2013--then ZIV seems to require about 50% to return to the 2007 peak. But shows only about 40% gain from then to today (September 25, 2014).

    So, sometimes the live performance seems substantially higher and sometimes lower than the simulated performance. I especially question that, in the simulations, XIV seems to rebound more quickly than ZIV. (Assuming that I am reading the graphs correctly.)

    If ZIV and XIV are rebalanced quarterly with more stable assets, I think it is unfair to judge their post-crash resilience starting from a peak. The best live data we have is for the 2011 downturn. I start at a pre-peak valley for XIV on March 21, 2011. Note that this perspective is substantially biased in favor of XIV when compared to ZIV, and in favor of both of them when compared to the S&P 500. Although as I say, I think this is the most realistic perspective for a moderate and rebalanced allocation.

    From this 2011.03 perspective, a moderate and rebalanced ZIV allocation might not have had significantly more of a negative effect on a portfolio than SPY. Also, both ZIV and SPY almost broke even in as little as 7 months: on October 28, 2011. However, ZIV had a strong relapse immediately after. ZIV was not firmly rebounded until February 2012--taking about 11 months, about 1-1/2 times as long as SPY.

    Similarly, XIV briefly regained its 2011.03 value in March 2012--and dipped steeply immediately after. XIV was not firmly rebounded until July 2012--about 16 months. So XIV's 2011 downturn lasted about 2 times longer than SPY and 1-1/2 times longer than ZIV.

    Also, to be precise, starting everything from 3/21/2011: then in 2011 XIV dropped -61%, ZIV dropped -24%, SPY dropped -15%.

    I.e. in the "routine" downturn of 2011--such as we can expect to happen every 5 years or so--XIV's drawdown was about three times worse than for either ZIV or SPY. Also because of this drawdown, the current live 5-year gains for ZIV and XIV are virtually equal.

    Also note that--as Mr. Harwood has commented on his website--because ZIV and XIV are derivative-based, there might not be any "equity" value to survive a collapse of the manager or the primary underwriter. So there might be no rebound from a pillar-toppling 2008-level event. A permanent loss of -100% is possible. Such as presumably happened to some Lehman ETNs in 2008.

    In conclusion, I currently suggest that the average do-it-yourself investor do not invest more than 15% in ZIV, or perhaps 25% at most for small accounts--and perhaps should not bother with XIV at all. Also, be sure to maintain trailing Stops. I myself hold a bit of both ZIV and SVXY in my own strategies (not XIV to avoid repeating the same management as ZIV)--but manage them closely and this is not for everyone.
    Sep 26, 2014. 12:03 AM | Likes Like |Link to Comment