Historical Annual Returns for the VIX Short-Term Inverse Daily Futures Index

As I have previously discussed, the VIX Short Term Futures Inverse Daily Index is a volatile index exhibiting a strong upward bias over time.

The VIX Short Term Futures Inverse Daily Index measures the performance of the inverse (determined daily and on a percentage basis) of the VIX Short-Term Futures Index. The VIX Short Term Futures Index utilizes prices of the next two near-term VIX futures contracts to replicate a position that rolls the nearest month VIX futures to the next month on a daily basis in equal fractional amounts. This results in a constant one-month rolling long position in  first and second month VIX futures contracts.  The VIX Short Term Futures Inverse Daily Index is designed such that if the VIX Short Term Futures Index rises 2% during a trading session, the VIX Short Term Futures Inverse Daily Index will drop about 2% (e.g., the inverse sign of the percentage movement of the underlying index).

The VIX Short Term Futures Index has experienced a strong downward bias in price movement since its creation as a result of contango.  "Contango" refers to a situation where a longer term future has a higher price than a short term future.  The VIX Short Term Futures Index replaces one-month futures with two-month futures - this process is commonly referred to as a future roll.  If the two-month future is trading at a higher price than the one-month future, the value of the VIX Short Term Futures Inverse Daily Index may increase as a result of this futures roll. 

The VIX Short Term Futures Inverse Daily Index, on the other hand, has experienced a strong upward bias since its creation because this index moves in the opposite direction of the VIX Short Term Futures Index on a daily basis.  Between December 20, 2005 and November 1, 2013, the VIX Short Term Futures Inverse Daily Index rose from a value of 100,000 to a value of 388,349.62, an increase of about 288.350%, or an annualized increase of about 18.9%.  This return is particularly impressive considering that the worst financial crisis since the Great Depression occurred during this time period.  As a point of reference, the total return of S&P 500 Index was about 65.31 % during the same time period, or an annualized gain of about 6.6%.

I was able to obtain daily closing values for the VIX Short Term Futures Inverse Daily Index dating back to January 11, 2008.  I obtained daily closing values for the VIX Short Term Futures Index dating between December 20, 2005 and January 10, 2008 and used this data to estimate the daily returns for the VIX Short Term Futures Inverse Daily Index dating back to December 20, 2005.  The charts below show a combination of (a) estimated daily closing values for the VIX Short Term Futures Index between December 20, 2005 and January 10, 2008; and (b) the actual daily closing values for the VIX Short Term Futures Index between January 11, 2008 and November 1, 2013.

The chart below shows the annual returns for the VIX Short Term Futures Inverse Daily Index between December 20, 2005 and November 1, 2013.  As discussed above, the returns for 2009-2013 are the actual returns of the VIX Short Term Futures Inverse Daily Index and the returns between 2005 and 2008 are based on my estimates of the VIX Short Term Futures Inverse Daily Index.

As shown below, the returns for the VIX Short Term Futures Inverse Daily Index have been incredibly volatile, ranging between 162.578% in 2012 and -70.960% in 2008.  Although the down years have included big decreases, the big increases during the up years have more than made up for the decreases.

There is a strong positive correlation between the S&P 500 Index and the VIX Short Term Futures Inverse Daily Index.  I personally believe that the long-term trend of the S&P 500 Index is up.  Accordingly, the long-term trend of the super-charged VIX Short Term Futures Inverse Daily Index is also likely to be up.  There are two popular investment vehicles for capturing the gains of the VIX Short Term Futures Inverse Daily Index: (a) the Proshares Short VIX Short-Term Futures ETF (symbol: SVXY); and (b) the VelocityShares Daily Inverse VIX Short-Term ETN (symbol: XIV).

The VIX Short-Term Inverse Daily Futures Index Presents An Interesting Speculative Investment Opportunity to Small Investors

The Chicago Board Options Exchange Market Volatility Index, or "VIX," is a widely-followed measure of the implied volatility of S&P 500 index options. The VIX is frequently referred to as the fear index or the fear gauge and represents a measure of the stock market's expectation of volatility of the S&P 500 Index over the next 30 day period.  The VIX generally has a negative correlation to price returns of the S&P 500 Index. 

The VIX is the second major volatility index created.  The first major volatility index, now referred to as "VXO," was created in 1993 and represents a measure of the implied volatility of S&P 100 index options.  The creators of the VXO index retroactively determined its closing values dating back to January 2, 1986.  VXO was the most widely-followed volatility until the VIX was created in 2003 to track the implied volatility of S&P 500 index options. Closing values for the VIX index were retroactively determined dating back to January 2, 1990.

The VIX is calculated and reported in real-time by the Chicago Board Options Exchange. The VIX represents a weighted blend of prices for a range of options on the S&P 500 index. The VIX is calculated as the square root of the par variance swap rate for a 30 day term initiated on today's date.  The VIX represents the volatility of a variance swap, not a volatility swap. A variance swap may be perfectly statically replicated through vanilla puts and calls whereas a volatility swap requires dynamic hedging. The VIX is the square-root of the risk neutral expectation of the S&P 500 variance over the next 30 calendar days and is quoted as an annualized standard deviation.

The chart below (click on the chart for a larger view) shows closing values for the VIX dating between January 2, 1990 and October 18, 2013.  As shown, during this time period the VIX closed at values ranging from 9.31 (achieved on 12/13/1993) to 80.86 (achieved on 11/20/2008), with an average closing value of 20.25.

Several additional indexes have been derived from the VIX.  Among them are the VIX Short Term Futures Index and the VIX Short Term Futures Inverse Daily Index.  Both of these derivative indexes were created in 2007 and closing values for these indexes were retroactively determined dating back to December 20, 2005.

The VIX Short Term Futures Index utilizes prices of the next two near-term VIX futures contracts to replicate a position that rolls the nearest month VIX futures to the next month on a daily basis in equal fractional amounts. This results in a constant one-month rolling long position in  first and second month VIX futures contracts. 

The VIX Short Term Futures Inverse Daily Index measures the performance of the inverse (determined daily and on a percentage basis) of the VIX Short-Term Futures Index.  Accordingly, if the VIX Short Term Futures Index rises 2% during a trading session, the VIX Short Term Futures Inverse Daily Index is designed to drop 2% (e.g., the inverse sign of the percentage movement of the underlying index).

The VIX Short Term Futures Index has experienced a strong downward bias in price movement since its creation as a result of contango.  "Contango" refers to a situation where a longer term future has a higher price than a short term future.  The VIX Short Term Futures Index replaces one-month futures with two-month futures - this process is commonly referred to as a future roll.  If the two-month future is trading at a higher price than the one-month future, the value of the VIX Short Term Futures Index may decrease as a result of this futures roll.  However, there are occasions during which the price of the two-month future is less expensive than the price of the one-month future such that the futures roll increases the value of the VIX Short Term Futures Index - this situation is known as "backwardation."

If the spot price of the VIX increases,  the VIX Short Term Futures Index will normally also increase unless the VIX Short Term Futures Index is in a state of contango.  Based on my own observations, the VIX Short Term Futures Index is normally around 30-40% as volatile as the VIX index.  Accordingly, if the VIX spot price increases 10% in a day, the VIX Short Term Futures Index will often rise 3-4% unless the VIX Short Term Futures Index is in a state of significant contango.

When the price of the VIX is below its long-term average of 20.25, the VIX Short Term Futures Index is usually in a state of contango.  However, when the price of the VIX is much higher than its long-term average of 20.25, the VIX Short Term Futures Index is usually in a state of backwardation.

The charts below show linear and log views of the daily closing values of the VIX Short Term Futures Index between December 20, 2005 and October 18, 2013.  During this period of time, the VIX Short Term Futures Index plummeted from a value of 100,000 to a value of 1,319.20, a drop of about 98.68%, or an annualized drop of about 42%.

As shown in the charts above, the VIX Short Term Futures Index has been a terrible speculative investment.  Although it has risen sharply during several periods of time, it is clear the strong downward bias of the index quickly wipes out accumulated gains over time.  A heavily traded ETN with the symbol VXX tracks the VIX Short Term Futures Index.

The VIX Short Term Futures Inverse Daily Index, on the other hand, has experienced a strong upward bias since its creation.  Between December 20, 2005 and October 18, 2013, the VIX Short Term Futures Inverse Daily Index rose from a value of 100,000 to a value of 393,853.39, an increase of about 293.85%, or an annualized increase of about 19%.  This return is all the more impressive considering that the worst financial crisis since the Great Depression occurred during this time period.  As a point of reference, the total return of S&P 500 Index was about 63.7% during the same time period, or an annualized gain of about 6.5%.

I was able to obtain daily closing values for the VIX Short Term Futures Inverse Daily Index dating back to January 11, 2008.  I obtained daily closing values for the VIX Short Term Futures Index dating between December 20, 2005 and January 10, 2008 and used this data to estimate the daily returns for the VIX Short Term Futures Inverse Daily Index dating back to December 20, 2005.  The charts below show a combination of (a) estimated daily closing values for the VIX Short Term Futures Index between December 20, 2005 and January 10, 2008; and (b) the actual daily closing values for the VIX Short Term Futures Index between January 11, 2008 and October 18, 2013.

As shown in the charts above, the VIX Short Term Futures Inverse Daily Index has been a fantastic speculative investment.  Although it has fallen sharply during several periods of time, it is clear the strong upward bias of the index quickly overcomes index drops over time. There are two popular investment vehicles for capturing the gains of the VIX Short Term Futures Inverse Daily Index: (a) the Proshares Short VIX Short-Term Futures ETF (symbol: SVXY); and (b) the VelocityShares Daily Inverse VIX Short-Term ETN (symbol: XIV).

Historical Returns for the Nasdaq-100 (1986-2012)

The Nasdaq-100 Index includes 100 of the largest domestic and international non-financial securities listed on the Nasdaq Stock Market based on market capitalization. It is a modified capitalization-weighted index. The weightings of companies in the index are based on their market capitalizations, with rules capping the influence of the largest components. As of September 20, 2013, the three largest components of the index are Apple (comprises about 12.18% of the index), Microsoft (comprises about 7.72% of the index), and Google (comprises about 6.69% of the index).

The Nasdaq-100 was initiated on January 31, 1985 and quickly became one of the most widely-followed technology indexes during the dot.com bubble. The chart below (click on the chart for a larger view) illustrates historical annual returns for the Nasdaq-100 index between the calendar years 1986 and 2012.  The Nasdaq-100 Index does not account for dividend payouts, but the Nasdaq 100 Total Return Index, which was initiated on March 4, 1999, does account for dividends.  The chart below calculated based on returns for (a) the Nasdaq-100 Index from January 1, 1986 - March 3, 1999; and (b) the Nasdaq-100 Total Return Index from March 4, 1999 - December 31, 2012. 

As shown, the Nasdaq-100 soared during the 1990s, rising about 1850% between 1991 and 1999, an annualized gain of about 38.29%. Between 1986 and 1999, the Nasdaq-100 rose about 2704%, an annualized gain of about 26.89%. However, between 2000 and 2008 the Nasdaq-100 was one of the worst-performing U.S. stock indexes, dropping about 66.48%, an annualized loss of about 11.44%.

The Nasdaq-100 rocketed during the late-1990s as investors piled into technology stocks regardless of valuations. As of January 1999, the price/earnings (P/E) ratio of the Nasdaq-100 index was reportedly about 90.2 and topped well over 100 by the end of 1999 as the Nasdaq-100 rose over 102% during the year. After the dot-com bubble burst, the Nasdaq-100 plummeted about 83% between a peak on March 27, 2000 to a trough on October 7, 2002.

Many investors were burned when the dot.com bubble burst and have shunned technology stocks ever since. I personally fell into that camp myself until I reevaluated my position in 2009. Although the technology bear market that extended between March 2000 and October 2002 (or March 2009, the bottom of the financial crisis bear market) was painful, technology stocks now currently have lower valuations than non-technology stocks and are likely to outperform in the near future. For example, as of the market close on September 20, 2013, the Nasdaq-100 had a P/E ratio of about 21.19, which is probably close to 20% of what it was at the time of the Nasdaq-100 index's peak on March 27, 2000.

I have previously stated that I believe that the Nasdaq-100 is in the beginning stages of a multi-year bull market run as investors reconsider the potential of high tech companies.

* I have posted updated returns for the Nasdaq-100 through 2016 in another post.

Historical Returns for the MSCI Emerging Markets Index (1988-2012)

The Morgan Stanley Capital International (MSCI) Emerging Markets (EM) Index is the preeminent emerging markets equity index. I have previously discussed annual returns of the index during the 1989-2008, 1989-2009, 1988-2010, and 1988-2011 and time periods.

The chart below lists annual returns for the MSCI EM Index in terms of U.S. Dollars between 1988 and 2012. The returns shown below represent net dividend reinvested returns.*

During the 25 years for which I have data (i.e., 1988-2012), the MSCI EM Index lost value during 10 calendar years and gained value in 15 other calendar years. The worst returns came during 2008 when the Index plummeted 53.33% during the financial crisis and the best annual gains came during 2009 when the Index soared 78.51%. As I have previously discussed, the best extended stretch of strong returns occurred between 2003 and 2007 during which the index gained an impressive 382.96%, an annualized gain of approximately 37.02%.

The annualized returns were -0.91% for the 5-year period, 16.52% for the 10-year period, and 8.96% for the 15-year period ending in 2012. Annualized returns between 1988 and 2012 were about 12.56% and the Index had a total new return of 1,826% between 1988 and 2012. The performance of the MSCI EM Index between 1988 and 2012 greatly exceeds the 9.71% annualized return and 913% total return of the S&P 500 Index during the same time period.

Emerging Markets are typically critical portion of an investment portfolio of any stock market investor with a long-term investment strategy.  Investment advisers typically recommend limiting Emerging Markets to no more than 10-15% of an aggressive investor's portfolio.

* The performance data shown is slightly different than the performance data I saw for the MSCI EM Index at Index Universe, and I am not sure of the reason for the discrepancy.

** I have updated this chart to include returns for 2013 in another post.

Historical Dividends for General Electric (1962-2012)

General Electric (ticker symbol: GE) is a large multinational conglomerate corporation and is one of the original 12 components of the Dow Jones Industrial Average.  General Electric owns businesses in four different segments: Energy, Technology Infrastructure, Capital Finance, and Consumer & Industrial. 

General Electric stock is the most widely held stocks in the entire world.  General Electric is also a favorite equity holding among investors seeking dividend income.  As of the market close on May 24, 2013, General Electric's dividend yield was about 3.23%.  General Electric has paid a dividend every quarter for over 100 years.

The charts below (click on a chart for a larger view) illustrate annual dividends for General Electric stock between 1962 and 2012.  As shown, the dividend per share rose from a split-adjusted value of $0.0208/share in 1962 to $0.70/share in 2012.  That is a total gain of 3,260% during that 50-year period of time, or an annualized gain of 7.28%.  This annualized gain greatly exceeds the annualized inflation rate of about 4.12% during the same time period.

This annualized gain is particularly impressive when considering that the dividend payout either stayed the same or increased for every year except for 2009, when the dividend payout was slashed, dropping the payout in 2010 to $0.46/share from a high of $1.24 in 2008.

General Electric is a solid blue chip company which will likely continue to increase its dividends for the foreseeable future.  It took the extreme financial crisis of 2008 to cause General Electric to cut its dividend in 2009, an event which is unlikely to occur again anytime soon.

Historical Returns for the S&P 400 Midcap Index (Updated Through 2012)

The S&P 400 Midcap Index is the most widely-followed U.S. Midcap stock market index.  This index was first introduced in June 1991.  I have previously posted charts with annual returns through 2007, 2008, 2009, 2010, and 2011. The chart below shows calendar-year returns between 1992 and 2012 (click on the chart for a larger view).  The chart below also shows five-year annualized returns, starting with the fifth full calendar year of the existence of the S&P 400 Midcap Index (i.e., 1996),  ten-year annualized returns, and fifteen-year annualized returns.

As illustrated, the S&P 400 Midcap Index rebounded in 2012 from a down year in 2011, rising about 17.88%.  The annualized return of the Index from 1992-2012 was about 11.28%, the 5-year annualized return through 2012 was about 5.15%, the 10-year annualized return through 2012 were about 10.53%, and the 15-year annualized return were about 9.14%. The total return (including reinvested dividends) between December 31, 1991 and December 31, 2012 was about 842.87%.

I am a fan of midcap stocks and recommend that any long-term investor seriously consider investing money in midcap stocks, such as those tracking the S&P 400 Midcap Index (e.g., the Midcap SPDR ETF (symbol: MDY) tracks the S&P 400 Midcap Index). Midcaps tend to provide higher returns over time than large cap stocks, such as those comprising the S&P 500 Index, although such stocks are generally more volatile over shorter time periods.

** I have posted an updated chart for the period between 1992-2022.

Historical Annual Returns for the S&P 500 Index - Updated Through 2012

2012 was a good rebound year for practically all U.S. equity indexes, including the S&P 500 Index, which had a total return of about 16.0%.   The market was driven higher as a result of somewhat improved economic growth as well as currency devaluation caused by the Federal Reserve pumping money into the U.S. economy. 

Standard & Poor's introduced its first stock market index in 1923 and created the S&P 500 Index in 1957.  The charts below (click on individual charts for a larger view) show annual total returns for the S&P 500 Index (and its predecessor S&P 90 Index) between 1926 and 2012.  The annualized return for the S&P 500 Index (and its predecessor S&P 90 Index) between 1926 and 2012 was about 9.84%.  The 5-year annualized return through the end of 2012 was about 1.66%, one of the worst 5-year annualized returns shown on the charts below, although it is an improvement over the -0.25% 5-year annualized return through 2011.  The 10-year annualized return through 2012 was about 7.10%, a major improvement over the weak 2.92% returns recorded in the 10-year period ending in 2011.

According to the Wall Street Journal, as of March 1, 2013, the P/E ratio of the S&P 500 Index based on estimated earnings over the next 12 months is approximately 13.68. As I have previously discussed, the average P/E ratio of the S&P 500 Index and other large caps stocks has been around 16 based on data dating back to the 1800s, so the S&P 500 Index may have some room to grow again in 2013 if the economy continued to strengthen. As of March 1, 2013 the S&P 500 Index (including reinvested dividends) is up about 6.86% so far this year.

 

 

I have posted an updated chart for the returns of the S&P 500 Index during the period between 1926-2015.

S&P 500 Dividends (1977-2012)

The chart shown below (click on the chart to see a larger image) illustrates dividend information for the S&P 500 Index from 1977-2012. As shown, the dividends paid by the S&P 500 Index component companies increased from $4.67 in 1977 to about $31.25 in 2012. That works out to a total increase of about 569.08% and an annualized increase of 5.581% in the dividend yield. This is a particularly impressive annual increase considering that this time period includes several bear markets such as those during (a) 1981-82; (b) 1990-91; (c) 2000-02; and (d) 2008-09.  The last two bear markets were particularly painful as the S&P 500 Index lost more than 50% of its value during both. 

As shown in the chart below, the annual % increase in dividends increased very rapidly during the late 70s-early 80s as a result of inflationary pressures (during the 1970s) and strong economic growth (during the 1980s).  The annual % increase in dividends was also strong between 2003 and 2007, fueled both by strong corporate profits and the dividend tax cut that Congress passed in 2003.  Dividend payouts, however, plummeted over 21% in 2008 during the 2008 bear market and financial crisis and only recovered to hit a new all-time high last year, in 2012.

I anticipate further % increases in the dividend rate in the coming years. Investors were burned badly during the 2000-2002 and 2007-08 bear markets and currently seem to prefer dividend increases over share buybacks. However, the % increase may be smaller in future years, given the dividend tax increases that the Obama administration pushed through Congress in 2012. 

***An updated version of this chart containing data from 1977-2016 may be found in this post.

1980 - 2012 Stock Market Returns for Various Indices

I have posted charts showing annual stock market and bond market returns for various indices in recent years for the time periods from 1980-2006, 1980-2007, 1980-2008, 1980-2009, and 1980-2010, and 1980-2011.  Shown below is an updated chart including returns from 2012 as shown below (click on the image for a larger view).

The chart shown below illustrates returns for small cap indices (Russell 2000, Russell 2000 Value, and Russell 2000 Growth), large cap indices (S&P 500, S&P/Citi 500 Value, and S&P/Citi 500 Growth), a broad-based foreign stock index (Morgan Stanley Capital International Index for the developed stock markets of Europe, Australasia, and the Far East ("MSCI EAFE index")), an index of bonds (Barclays Capital Aggregate Bond Index)*, and the Nasdaq Composite Index.

2012 was a good year for most stock market indices as central banks around the world continued a strategy of monetary easing to provide additional liquidity to the markets.  Each of the stock market indices shown in the chart below returned at least 14% in 2012.  The bond market, on the other hand, lagged the stock market indices, returning just over 4%. 

Value indices outperformed Growth indices during the past year - the Russell 2000 Value Index was the strongest equity performer of the indices shown below for the first time since 2004, returning about 18.05%. The next best performer was the S&P 500 Value Index, which returned about 17.68% in 2012.

International equities rebounded from a tough environment as a result of the Euro-zone issues in 2011, with the MSCI EAFE Index gaining about 17.32%.  Other U.S. stock indices were also up across the board, with the S&P 500 Index gaining about 16%, the Russell 2000 Index gaining about 16.35%, and the Nasdaq Composite gaining about 15.91%.

As shown in the chart below, the Russell 2000 Value Index provided the strongest returns by far between 1980 and 2012, returning a total of 4,864.28%, or an average of 12.56% per year. The total returns of the Russell 2000 Value Index has returned nearly 1,700% more relative to its initial value on December 31, 1979 than the next best index tracked below, the S&P 500 Index.

  
* The Barclays Capital Aggregate Bond Index was known as the Lehman Brothers Aggregate Bond Index prior to 2008.

 *** Edit - January 2, 2017 ***
I have updated this chart with results through 2016.