ZIVB: 3 Things You Need To Know About This Red Hot 16% Yielding Monthly Dividend ETF

seekingalpha2024-08-03

Half of baby boomers have retired, and by 2030 the other half are expected to retire.High-yield monthly ETFs like JEPI, JEPQ and SVOL are popular among retirees for promising double-digit yields and ...

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It's only suitable as a replacement for speculative stocks or leveraged stock ETFs like TQQQ.   LumerBHigh-yield monthly ETFs have become very popular, so why not?And 16% yield, paid monthly, that's been rocketing higher in recent months!?","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"UVXY":"1.5倍做多恐慌指数短期期货ETF","BK4550":"红杉资本持仓","SVXY":"0.5倍做空波动率指数短期期货ETF","BK4588":"碎股","VIXY":"波动率短期期货指数ETF","TVIX":"二倍做多VIX波动率指数短期期权ETN","SVOL":"Simplify Volatility Premium ETF","FDN":"First Trust Dow Jones Internet I","BK4585":"ETF&股票定投概念","BK4017":"黄金","VXX":"短期VIX期货ETN","ZIVB":"-1x Short VIX Mid-Term Futures Strategy ETF"},"translate_title":"ZIVB：关于这款炙手可热的16%月度股息ETF您需要了解的3件事","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"ZIVB":1,"FDN":1,"SVOL":1,"US30Y.BOND":0.9,"VXX":0.9,"US7Y.BOND":0.9,"US6M.BOND":0.9,"US5Y.BOND":0.9,"US3Y.BOND":0.9,"US2Y.BOND":0.9,"US12M.BOND":0.9,"US10Y.BOND":0.9,"TVIX":0.9,"NQmain":0.9,"SVXY":0.6,"VIXmain":0.6,"US912797GK78.BOND":0.6,"US912797GL51.BOND":0.6,"US912797GW17.BOND":0.6,"US912797HE00.BOND":0.6,"UVXY":0.6,"VIXY":0.6},"content_text":"Half of baby boomers have retired, and by 2030 the other half are expected to retire.High-yield monthly ETFs like JEPI, JEPQ and SVOL are popular among retirees for promising double-digit yields and monthly dividends.ZIVB, a volatility yield ETF, has generated strong annual returns since inception, and is currently paying 16% yield, almost 1.5% monthly dividends.ZIVB is perfectly designed for short-term traders in tax-advantaged accounts looking to make speculative bets about the future direction of stocks.It's effectively a leveraged bet on short-term stock prices that benefits from long periods of falling volatility, such as after bear market bottoms. It's only suitable as a replacement for speculative stocks or leveraged stock ETFs like TQQQ.   LumerBHigh-yield monthly ETFs have become very popular, so why not? Baby boomers, the second biggest US generation, 73 million strong, are 50% retired right now. By 2030, the other half will be over age 65. ETFs that promise double-digit monthly yields seem like a rich retirement dream stock. ETFs like JEPI, JEPQ and SVOL are popular, offering monthly yields of 8%, 10%, and even 16%. You must be skeptical whenever someone promises a 10%, 20%, or even higher monthly yield because there's almost always a catch. Volatility Yield ETFs: An Exciting New Asset Class... If You Use Them Responsibly I recently looked at the Simplify Volatility Premium ETF (SVOL), a well-designed VIX-based high-yield ETF.   SVOL: This 16% Yielding Monthly Dividend ETF Is Perfect For One Type Of Investor (SA)  SVOL is run sustainably and responsibly by a reputable quantitative ETF shop specializing in alternative asset ETFs. However, after publishing that article, I got several questions about this volatility yield ETF, the -1x Short VIX Mid-Term Futures Strategy ETF (BATS:ZIVB). YchartsAnd what's more, that yield, which has been rising quickly, has come from an ETF that's left the S&P and even the Nasdaq in the dust. Ycharts75% returns that have kept up with the Mag 7?! And 16% yield, paid monthly, that's been rocketing higher in recent months!? Too good to be true? Yup. Let's look at the three things high-yield investors need to know about this 16% yielding monthly dividend ETF, including the three significant differences between ZIVB and SVOL that make it highly speculative and potentially risky for retirement portfolios. Fact 1: Initial Sky-High Yield + Super Returns Are Not Sustainable We provide traders with innovative ETFs that offer the potential to profit from various market conditions. Volatility Shares is a Registered Investment Adviser registered with the SEC and a Commodity Pool Operator (CPO) registered with the NFA.\" - Volatility Shares Volatility shares are a new asset manager with a family of volatility-focused ETFs.  ETHU: 2X daily Ethereum returns. BITX: 2X daily Bitcoin returns. SVIX: -1X daily VIX futures. UVIX: 2X daily VIX futures. ZIVB: -1X daily medium-duration VIX futures  Key Personnel Stuart Barton, PhD, CFA: Stuart is the company's Co-Founder and Chief Investment Officer. He has more than 20 years of experience in derivatives structuring and trading. He holds a PhD in economic history from the University of Cambridge and is a CFA charter holder. Justin Young: Co-Founder and President. Justin has more than 15 years of experience in capital markets and structuring, having developed and launched over 500 ETFs during his career. Chang Kim, CFA: Chief Operating Officer and Chief Compliance Officer. Chang has 12+ years of experience in portfolio management and capital markets, previously serving as COO at Global X ETFs. Charles Lowery, CFA: Head of Product Management. Charles has 16-plus years of experience in launching and managing ETFs, with previous roles at Milliman Financial Risk Management LLC and ProShares. The team behind Volatility shares appears to be reputable, though launching 500 ETFs in one's career sounds more impressive than it is. In 2022, a terrible year for stocks, there were 400 ETF launches alone. According to Morningstar, in 2023 alone, there were 244 ETF closures with an average age of 5.4 years and average assets under management of only $54 million. SEC registration costs $240,000 annually, meaning that most ETFs require around $50 million in AUM to break even. That's why hundreds of ETF launches occur every year, as managers throw everything against the wall to see what sticks. Volatility shares have $1.7 billion in assets under management, all of which they got in the last year since they are brand new. Strong Beginners Luck for ZVIB Historical Returns Since May 2023 Portfolio Visualizer This is why so many people are excited about ZIVB. 60% annualized returns, a peak decline no worse than the S&P, and a 16% yield paid out as 1.5% per month (so far). Portfolio Visualizer More than doubling the market's returns while paying 1.5% monthly dividends? What's not to love? ZIVB generated incredible income in 2024, and volatility has fallen to its lowest level since 2017. Portfolio Visualizer This ETF has seen gains as high as 21.5% in a month. It's had three months of double-digit gains, and it's only been around for a little over a year. Portfolio Visualizer Since inception, ZIVB has generated 21% annualized alpha, far more than more conservative income ETFs like SVOL or JEPQ. Portfolio Visualizer ZIVB has captured 171.5% of the S&P's upside in months when stocks go up and just 45% of the downside. That's an impressive 4:1 market upside to downside capture ratio. SVOL is even better at almost 10X, but SVOL hasn't delivered 80% returns in just over a year. Simply put, ZIVB has gotten very lucky and has any income investors riding this ultra-yield ETF to those impressive profits. Fact 2: This ETF Is Designed For Speculators, Not Long-Term Investors The -1x Short VIX Mid-Term Futures Strategy ETF is designed to provide daily investment results that correspond to the inverse (-1x) of the daily performance of the S&P 500 VIX Mid-Term Futures Index. This means it aims to deliver the opposite return of the index daily. Here are the critical aspects of its design: Inverse Exposure: The fund provides inverse (-1x) exposure to VIX futures, which means it's designed to increase in value when the VIX futures index decreases and vice versa. Mid-Term Focus: Unlike some VIX-related products that focus on short-term futures, ZIVB targets mid-term VIX futures. Specifically, it tracks the fourth, fifth, sixth, and seventh-month VIX futures contracts. Daily Rebalancing: The fund rebalances its exposure daily to maintain its -1x inverse relationship to the index. Active Management: ZIVB is an actively managed ETF, which means that while it aims to track the inverse of the S&P 500 VIX Mid-Term Futures Index, its managers have some discretion in how to achieve this goal. Futures-Based Strategy: The fund invests in VIX futures contracts to achieve its objectives rather than directly in the VIX index (which is not directly investable). Monthly Distributions: ZIVB offers monthly distributions to its investors. Ok, so what's the problem? SimplifyZIVB has generated massive gains and impressive yields because it's 100% short in VIX futures. It's also a daily reset ETF. Why is SVOL 20% to 30% short VIX futures and not 100%? We'll discuss that in the risk section (see Fact 3: This ETF Is Potentially Risky For Retirees). Why is ZIVB up so much and doing an incredible job generating monthly yields? Charlie Bilello Because market volatility has been falling since the 2022 bear market ended. When you're 100% short market volatility, there's a major tailwind in the underlying futures value. Next, consider the roll yield that ZIVB is harvesting. SimplifyRemember how SVOL works? ZIVB works on the same principles. The VIX futures curve is positive 85% of the time (including now), meaning it can \"harvest the roll yield\" of the VIX futures curve.   SimplifyFactors Contributing to ZIVB's Performance Roll Yield Roll yield is a significant factor in the performance of volatility ETFs like ZIVB. Roll yield refers to the gains or losses generated when rolling over futures contracts as they approach expiration. When the VIX futures curve is in contango (where longer-dated futures are priced higher than near-term futures), inverse ETFs like ZIVB can benefit from positive roll yield. This is because they effectively sell higher-priced contracts and buy lower-priced ones, generating a profit from the price difference. Declining Volatility The VIX Index measures market volatility, declining throughout the year. Since ZIVB is designed to provide inverse exposure to the VIX Mid-Term Futures Index, it benefits when volatility decreases. As the VIX declines, the value of the VIX futures contracts that ZIVB is shorting also decreases, leading to gains for the ETF. Appreciation of Underlying Contracts As the VIX has been trending downward, the mid-term VIX futures contracts that ZIVB tracks have also been declining in value. This decline in the value of the underlying contracts contributes to the ETF's appreciation. Compounding Effects The daily resetting mechanism of ZIVB can lead to compounding effects, which may enhance returns in a trending market. Daily compounding can result in higher cumulative returns when volatility consistently declines. Fact 3: This ETF Is Potentially Dangerous For Retirees Risks of Rising Volatility While ZIVB has performed well in a declining volatility environment, it's essential to note that this ETF could rapidly decline if volatility increases. Here’s why: Inverse Exposure: ZIVB provides inverse exposure to VIX futures. If the VIX spikes, the value of the VIX futures contracts will rise, leading to losses for ZIVB. Daily Rebalancing: Daily rebalancing can exacerbate losses in a volatile market. If the VIX experiences sharp increases, the ETF may suffer significant losses due to the compounding effects of daily resets. Path Dependency: ZIVB's performance is path dependent, meaning the sequence of daily returns matters. In a volatile market with large swings, the ETF's performance can deviate significantly from the expected inverse of the VIX futures index. The Risks Of Beta Decay (Beta Slippage) In Daily Reset ETFs Beta decay occurs anytime you have a daily reset mechanism. Beta decay is a concept that explains why certain investment products, such as leveraged and inverse ETFs, may lose value over time even if the underlying index or asset they track does not. This phenomenon is primarily due to the daily resetting mechanism of these funds. What Causes Beta Decay Daily Resetting: Leveraged and inverse ETFs reset their exposure at the end of each trading day to maintain a constant leverage ratio. For example, a -1x ETF aims to provide the inverse of the daily return of its underlying index. Compounding Effect: Because these ETFs reset daily, their returns compound differently than non-leveraged investments. This can lead to performance that deviates from the expected inverse or multiple of the index over longer periods. Volatility Drag: The more volatile the underlying index, the more pronounced the beta decay. This is because the daily resetting process can lead to losses that accumulate over time, especially in a choppy market. Example Imagine an ETF that provides -1x inverse exposure to an index. Here’s how it might perform over a few days:   Day 1: The index goes up by 10%. The ETF goes down by 10%.  Day 2: The index goes down by 10%. The ETF goes up by 10%.  Let's assume the index starts at 100. Here's the math:   Day 1: Index = 100 * 1.10 = 110; ETF = 100 * (1 - 0.10) = 90  Day 2: Index = 110 * 0.90 = 99; ETF = 90 * (1 + 0.10) = 99  Even though the index is almost back to its original value, the ETF has lost value due to the compounding effect. J Cooper You can see how daily reset ETFs can lose money even if the underlying asset remains flat over time. Of course, prices for most leveraged ETFs (like 2X or 3X S&P or Nasdaq) go up over time. J Cooper Beta decay acts like a second expense ratio, though you usually earn a positive return over the S&P or Nasdaq. Note how inverse ETFs for stocks are guaranteed to lose money over time. These leveraged and inverse ETFs are trading vehicles designed for short-term trades using technical analysis (or hunches) to make speculative bets. SVOL uses medium-term futures to generate stable income over time without daily resets. What Happens When Market Volatility Spikes YchartsThe VIX went from 13 to 17 during the recent market pullback, a 4.7% peak decline. As expected, SVOL suffered a decline, but half as severely as the S&P. That's by design because SVOL uses risk management via out-of-the-money VIX puts to protect against sudden market declines. SVOL also invests most of its funds (about 85%) in bonds, taking a holistic max-income approach. SimplifyZIVB doesn't employ risk management. It's purely about short-term leverage of VIX volatility, targeting the highest duration part of the curve. In other words, SVOL is like JEPI or JEPQ, a gold standard approach to harnessing covered calls or volatility futures to generate income. ZIVB is like TMF, a 3X long bond ETF, a potentially powerful short-term speculative trading tool if you are highly convinced about where long-term rates will move in the short term. But you'd never buy 3X long bonds (daily reset, so beta decay) as a long-term allocation, and the same appears true for ZIVB. ZIVB Monthly Returns Ranked By Highest To Lowest               ZIVB SVOL JEPQ Vanguard 500 Index Investor   Year Month Return Return Return Return   2023 6 22.115% 5.35% 3.15% 6.60%   2023 11 17.70% 4.74% 7.715% 9.115%   2024 5 10.515% 3.15% 5.01% 4.95%   2023 5 6.90% 3.16% 4.34% 0.41.5%   2023 7 5.41.5% 0.87% 2.97% 3.20%   2024 1 4.03% 0.91.5% 3.00% 1.67%   2024 2 3.54% 1.59% 4.30% 5.33%   2024 4 3.08% -0.91.5% -3.30% -4.10%   2023 12 2.71% 1.71.5% 3.00% 4.53%   2023 8 1.54% 1.54% -0.13% -1.60%   2024 3 -1.60% 0.93% 2.51% 3.21%   2023 9 -1.91% -0.38% -3.34% -4.78%   2024 7 -2.13% 0.18% -4.90% -0.38%   2024 6 -2.15% 0.93% 3.27% 3.58%   2023 10 -6.00% -1.09% -0.76% -2.11.5%   Click to enlarge (Source: Portfolio Visualizer) Note that when ZIVB does best, the S&P roars higher after correction bottoms. What does that mean? It's effectively a high-volatility leveraged bet on the S&P. SimplifyWhen stocks fall, the VIX spikes and the VIX futures curve becomes inverted (backwardation). In other words, the reason for ZIVB's incredible 60% annualized returns and 16% yield so far is that volatility has been falling steadily since it launched. But unlike SVOL, which has two ways to combat market volatility (85% bond allocation and out-of-the-money VIX puts), ZIVB is not designed for high-income and lower volatility. Portfolio Visualizer Note how SVOL's historical beta is 0.37, meaning that when the S&P moves up or down 1%, SVOL moves up or down 0.37%. ZIVB is a 1.27 beta stock, more volatile than the Nasdaq. And actually, ZIVB's long-term volatility is likely to be even more extreme. Since April 2023, when ZIVB launched, we've seen very low volatility, with the worst month for stocks being -4.78%. The S&P's historical worst months (5% conditional value at risk) is 10%, meaning that in the long term, ZIVB's volatility will likely be about 2X worse than it has been now, and in specific bear markets, it might be 3X or even 4X. Don't Forget About Taxes          ETF Pre-Tax Annual Return Since Inception Post-Tax Return Tax Expense Ratio % Of Returns Eaten By Taxes   ZIVB 62.09% 54.89% 7.20% 11.5%   SVOL 12.14% 5.60% 6.54% 54%   JEPQ 16.87% 11.81.5% 5.05% 30%   JEPI 8.36% 4.29% 4.07% 49%   VNQ (REITS) 7.48% 5.63% 1.85% 25%   BAGPX (60-40) 6.01.5% 4.51% 1.51% 25%   SCHD 12.80% 11.71.5% 1.08% 8%   VYM 8.33% 7.41% 0.91.5% 11%   COWZ (FCF Yield, Deep Value) 13.53% 12.71.5% 0.81% 6%   SPY (S&P) 10.13% 9.48% 0.65% 6%   QQQ (Nasdaq) 9.74% 9.21% 0.53% 5%   Click to enlarge (Source: Morningstar) The tax efficiency of derivatives-based high-yield monthly dividend ETFs is terrible because VIX futures income is taxed as ordinary income. These are best owned in a tax-advantaged account. College InvestorFor those in the top tax bracket, there's also a 3.8% ACA surcharge for federal taxes, and most states tax all income, including options income, as ordinary income. Perplexity  Perplexity Perplexity Perplexity Perplexity And don't forget that local governments can sometimes levy their own income taxes. Perplexity The highest possible tax rate in the US is for the top tax bracket in New York City at 56%. Bottom Line: ZIVB Is A Trading ETF That Most Retirees Should Probably Avoid ZIVB is an incredible trading vehicle for those who want to harvest VIX futures roll yield over short periods and profit from correction lows. ZIVB is perfect for those with tax-advantaged accounts who want to take specific speculative bets with a portion of their stock allocation. Just like SVOL is designed to replace the equity portion of your portfolio, ZIVB is intended to replace parts of the speculative portion of your portfolio. For example, if your portfolio consists of 70% stocks and 10% speculative stocks, replacing parts of that speculative stock allocation with ZIVB might be prudent. For example, in October 2022, ZIVB likely would have been crushed as the market bottomed in the 2022 bear market. At that, traders might select ZIVB as an alternative to speculative assets like leveraged S&P or Nasdaq ETFs. You can earn similar returns (and beat the S&P unlevered) while generating incredible income as volatility falls. After a bear market, volatility can spend years in decline, creating a powerful tailwind for inverse VIX ETFs like SVOL and ZIVB. Long-term investors can also use these kinds of ETFs if they remember what parts of their asset allocation they should replace. SVOL is an excellent alternative to stocks in a tax-advantaged account because it's designed to deliver market-like returns via a pure income approach with 50% lower volatility than S&P. ZIVB is designed to deliver around 2X the market's volatility in exchange for much stronger returns, also driven via income. Do you want to replace parts of your portfolio holding things like TQQQ or ARKK? Then ZIVB is a potentially fine choice, as long as you remember the very high tax expenses and account for that.  But if you're hoping to retire rich because you can earn 60% returns long term while enjoying almost 1.5% monthly dividends? 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