Stocks quoted in this article:
We haven't commented much about the iPath S&P 500 VIX Short-Term Futures ETN (VXX) lately. I've unfortunately subscribed to the school of blog-thought that says "If you can't find something snarky to say about something, don't say it." And I have nothing snarky to say about VXX.
It has hit new all-time lows on 311 of the 1,423 trading days since it began trading five and a half years ago, but last made the bad kind of history on July 3*. That's almost three calendar months, and 60 trading days, ago.
VXX hit a low of 26.95 that day, so it's up about 9% as of Friday's close. Just for reference, the CBOE Volatility Index (VIX) closed at 10.32 that day, the lowest close since February 2007.
That stacks up as one of the longer runs of competence in VXX history. Here's a table of some VXX streaks, along with the duration (in trading days). Just for laughs, I included the adjusted price of the new low at the end of the streak.
So, if we can hang in for another two and a half weeks, VXX will notch the third-longest competence streak in its illustrious history. Interestingly, it will surpass the run from this spring, which begs the question of whether there's a trend going on. Is VXX poised to stay better going forward?
Well, maybe VIX bottomed, but VXX can defy the laws of math forever. So long as the VIX futures curve stays in contango, and at a premium to VIX itself, then VXX will have a tough time not drifting. And, the futures curve is still in contango, and still above VIX -- so it's still just a matter of time before VXX tanks yet again.
I will say this though: it's worked unusually well as a portfolio hedge since that last low. The SPDR S&P 500 ETF Trust (SPY) closed at 198.20 that day, which means it's basically unchanged, while the "hedge" lifted 9%. Not bad. What's more, you've gotten SPY dividends, so net-net you would have earned on both sides of the position. It's not often you can say that about a permanently decaying asset.
But again, don't expect that sort of past performance to continue forever. It's easy to look good when going forward from a cherry-picked date. VIX wasn't likely to go down much more from that reading near 10, considering it rarely gets that low. But, VXX didn't necessarily have to follow suit, as VIX could have just flat-lined, also. And remember, you can't actually buy VIX.
*So, it turns out VXX hit a new all-time low on Sept. 19 and I missed it -- my bad. It will go in the books as the 5th longest streak of VXX competence ever (the table has been updated to reflect this). My non-snarky point was that VXX has indeed performed relatively well for three months now, but that's unlikely to persist over time. The market is tanking as I type this, so today is clearly not the day to worry about VXX eventually disappointing.
Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.