Is the 17.4% SVOL too Good to be True? | SVOL vs QYLD

Описание: The Simplify Volatility Premium ETF, SVOL, pays a double-digit dividend yield but is it too good to be true? What are the pros and cons and how does it stack up against the QYLD? Want even safer dividends? Check out these safest five dividend stocks!    • 5 Safest Dividend Stocks for the Perfect D...  

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The SVOL works on a short volatility strategy, selling futures on the VIX volatility index? Volatility is just how much the market or a stock moves up or down in a given period, a gauge of stock market craziness. The Volatility Index, or VIX, is the market’s expectation for volatility over the next month, so how crazy investors believe stock prices will be.

But the SVOL isn’t really making a directional bet here, it’s simply saying that market expectations for volatility are typically higher than actuality. Shorting those expectations, so selling futures contracts against the VIX, is a way to capture the fear premium in the market.

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The strategy is backed up by research, testing VIX futures shorting from 2005 through 2015 , rolling the short contract over each month was profitable in eight of the 11 years with an average monthly return of 0.7% and a total return of 118% over the period.

Versus the QYLD, the SVOL offers a higher dividend yield and the price has held up better than the covered call ETF. In fact, the SVOL has even beaten the market index. But just because the Volatility ETF beats the QYLD doesn’t mean you should buy it. Is the SVOL a good investment?

I love that this is an opportunity in a different asset class. There are plenty of stock dividend funds and those covered call ETFs basically all doing the same thing. An investment in one is the same as any and they are all going to go in the same direction along with the market .

Here with the Volatility ETF, you have the opportunity to spread your risk out into another asset that shouldn’t move one-to-one with stocks and can help keep your return high while minimizing risk.

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Joseph Hogue, CFA spent nearly a decade as an investment analyst for institutional firms and banks. He now helps people understand their financial lives through debt payoff strategies, investing and ways to save more money. He has appeared on Bloomberg and on sites like CNBC and Morningstar. He holds the Chartered Financial Analyst (CFA) designation and is a veteran of the Marine Corps.
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