ETF Battles: It's a Volatility Income Showdown - SVOL vs. ZVOL!

There are ETFs that allow you to play on stock market volatility directionally, up or down.

But what about ETFs that aim to capitalize on the income potential from volatility?

That sounds juicy. 40% distribution rates.

Sure, why not?

What besides nothing could possibly go wrong?

Coming up on today's program, we've got an audience requested ETF battle. this time between volatility income funds with yields to the moon from simplifying volatility shares.

Stick around.

Welcome to all.

You're watching ETF Battles.

I'm Ronda Ley.

This is season 6 and I hope everyone's doing well.

If there's an ETF battle you'd like to see, please send me your ETF ticker symbols in the comment section below.

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So, again, you'll find that and more in the description section below.

So, today's audience requested ETF battle is from a viewer named Minas and it's between SVAL and ZVL.

These are volatility income ETFs from Simplify and Volatility Shares.

Judging today's volatility contest, we've got uh a duo extraordinaire.

We've got Aan Ferris with Bloomberg and Mike Akens with ETF Action.

Guys, great to see you.

Hey guys, nice seeing you.

Great to be here.

We're going to blaze through our four battle categories, giving each of our judges an opportunity to give us their preferred choice.

For our mystery category, our judges can choose a single factor or multiple factors that they feel are pertinent to today's matchup.

Our judges can also nominate wildcard ETFs if they think there's something better elsewhere.

Keep in mind, none of the battle outcomes are ever known in advance by myself or our judge judges, nor are they ever predetermined.

So, let's kick things off with the first category, cost.

Mike, please get us started.

Awesome.

Well, it's good to be here, Ron.

Thanks for having me.

Um, on the cost side of things for these two products, they're both expensive in ETF world. uh SVL come in at 72 bips, 142 bips on Zall.

So on the cover of things, SVL is the cheaper of the two products, but they're both well, they're both selling volatility to create income.

Um they're doing it in varying degrees of risk.

So your expense ratio on this whole game is not going to be a big component in your determination on which one of these two products you want to use.

Um, but just on pure cost basis, uh, you know, assuming liquidity is very similar between the two, uh, SVL does come in considerably cheaper at that 72 basis points.

All right, got you down for ESV.

Thank you, Mike.

Ethan, you're up next.

How do you see it when it comes to cost?

Hey, guys.

Um, no, that was great.

Uh, yeah, like Mike alluded to, they're not cheap overall by the grant, you know, by overall standards. 142 basis points for Zall, 72, still high, but that's half of Zall.

Um, as well has also been around a lot longer.

It's got more in assets.

It's almost close to a billion, which is really impressive for something like this.

It trades a lot more.

So, I think the spread's a little bit tighter there.

So, I think this is a pretty clear winner that uh SVAL is the overall total cost uh cheaper.

So, I'll give that one to to ESV.

Exposure strategy is the next category.

This is where we take a look at the underlying fund strategy.

And so, break it down for us, Aan.

How do these two ETFs compare?

Yeah, Mike was sort of alluding to it.

So m the main thing is it's is for investors looking for different types of yield however we're getting and this is a big thing in the ETF industry now.

Um so essentially they're just selling V but to different degrees and if you remember back in the day there was like XIV the product's not around anymore but this is what how this trade got really popular.

So SVA is a little the yield it's a little bit lower meaning that it's not doing a one for one inverse of the VIX.

It's doing anywhere from only 25 to 30% of it.

So, it'll be a little bit uh less volatile.

It's also using options to kind of mitigate that volatility.

SVA is a minus one of the midterm VIX.

So, there's different structures, right?

There's really short-term, there's midterm, and long-term.

This is just sort of targeting the middle.

I think one of the reason for that was the XIV issue is what the really short-term ones.

It tends to be very volatile than the middle of the curve.

So, it wanted to sort of mitigate that.

So you're going to they're just targeting the middle of the curve.

So it's just a little bit different strategies.

Uh you're going to get a lot more juice in SV just because it's not using any options any other kind of like V mitigating strategies.

Um you know it's a tough one.

I think if you want the most pop you're going to have to get ZV cuz these are um but for someone looking for more steady income, a little bit less volatility, SV is probably your winner.

And just for that, I'm probably going to give it I'm going to give this one to Esph just cuz I think it's a little bit more of a predictable return path compared not to compared to like stocks or something, but just between the two, uh, it's a little bit more predictable.

Uh, and so I think you have less of an issue of any sort of outsized event.

So I will give this one to the simplified product as follow.

Solid takes.

Thank you, Aan.

Mike, you're up next.

How do you see it when it comes to exposure strategy?

Yeah.

So on the strategy front, I think Aon did an excellent job explaining the nuances between the two products.

Essentially, you get the full inverse with ZVL, meaning inverse VEX or VIX proportionally a full inverse.

Um, which in result gives you a heck of a lot more volatility, which is why it's going to kick off a much larger income stream by selling that volatility and collecting that premium.

Um whereas uh Esol tries to take away a little bit of that volatility by dialing it back to that 20 to 30% range.

Um and to that extent um they're both going to have moments of shock, right?

So just recently on Liberation Day, both these products when the VIX popped up, they both got um smoked pretty well, but ESV got smoked about 25% or you know uh relative to the to the ZAL.

Um so the selling volatility is not new.

Um, I think you need to know what you're doing and you need to understand that, hey, I'm gonna pick a pre I'm gonna pick up this premium for long periods of time, but then from time to time, I'm going to have to restart and I expect to lose a significant portion of that asset.

Um, it's a very disciplined game.

Um to that extent, if this is something you're looking to utilize inside of a portfolio for some uncorrelated um income generation, whatever it may be, I think ESV is better suited um just because of you you still can get very um it can be still be very volatile.

Um but relative to ZAL, uh it's not not even on the same page.

It's it's one quarter.

So it's a big difference on that front.

Um, you know, one thing I would say and just generally, um, a lot of times people say you're selling V, you're picking up pennies in front of a steamroller.

Just keep that in mind, um, on these strategies.

Great analogy.

We don't want to be steamrolled for picking up pennies, but it is uh, it is worth noting that could happen like you said in really crazy.

Yeah.

Yeah, it will happen.

Exactly. in in especially in periods of extended volatility, you know, not just those spikes that we always get every now and then, but also what about sustained periods of high volatility that could spell trouble.

That takes us next to performance and yield.

And Mike, you sort of alluded to this, so please elaborate.

Yeah.

So performance on this front, I mean the strategy in of itself is always going to get reset at some point when you have an event whether it's COVID or whether it's liberation day or whether it's whatever causes the market to have a spike in volatility of all spike you're going to have a reset in your return.

So you're thinking about it, you know, really from a standpoint of how much risk, how much of how big of a reset am I willing to take to pick up income in the meantime.

Uh so obviously ZAL is kicking off about four times the amount of um income that you're seeing in ESV which is still kicking off a lot of income.

You know 12 13% versus 40 plus percent in ZAL.

Um so the yield obviously you're going to get more with ZAL.

Um but you're also going to have much larger draw downs when those V spikes happen.

So it's literally it's up to you um as the investor.

You know what what can you stomach?

How disciplined are you to sticking to the strategy?

Again, I think that the odds are more people are going to be have be able to stick with ESphall.

And from that perspective, I'm just going to continue to give the win here to ESV.

Um, from a standard use case.

Now, if you're really into this and you understand how you're using it, if you have a hedge on the other side of it, you know, there could be a reason to go a little bit further.

Um, but you really need to know what you're doing.

Ethan, you're up next.

How do you see it when it comes to performance and yield?

Yeah, that was great.

And this is where it gets kind of complicated because the yield on ZAL is 40% 41 and it's about 17 on asphalt.

That's a big difference, right?

It's enough to get someone thinking like do I want to buy ZVAL and handle and you know be exposed to more of the volatility, more of the draw downs and even just on a total performance uh basis, ZVA has done better and kind of like Mike was alluding to, this is going to work until it doesn't, right?

Right.

And then it can be really really ugly and and so um you know the you know I guess like you say as long as you know what you're doing I think it's just tough to ignore the 41% yield on asphalt.

I get that that that that's just such a significant uh gap over the other one.

Um performance even though I had picked exposure asphalt performance I'm going to give it to Zall just cuz you get so much more juice on the way up.

But again, being aware of all the risk factors and things like that that that could that you could see with with Zol.

So, just something to keep aware of.

But the yield you're getting is just significantly much more than SVL.

So, I'll give it to to Zol for this one.

Up next is our mystery battle category.

This is where our judges can pick a factor or multiple factors that they think are crucial to today's contest.

So, Aan, what is your uh mystery battle category and which of these ETFs wins it?

Sure.

So I I think we'll look at taxes uh and because of income, right?

And something to be aware of depending, you know, maybe if this isn't a tax qualified account, it's not a problem, but taxes.

Yeah.

Yeah.

I think everybody does, but with these uh unfortunately, you're because income is such a big driver of these, you're going to be stuck with a tax bill, uh you're going to have to pay taxes on asphalt is much higher.

Uh a lot of it comes more for the yield than than the price movement.

So unfortunately, you're going to be paying taxes on that.

So because let's just we're slicing it thin here, but from a tax efficiency standpoint, ESV is slightly a little bit better than than Zol.

So I'll give it to SVOL.

Thank you, Aan.

Mike, you're up next.

What is your mystery battle category and which of these two ETFs wins it?

Well, first I'm really glad that Aon brought that up because um taxes is really should be mindful of how much what what what you're going to be paying in taxes when you get this income, how is it structured, all that good stuff.

So, um, second, I'm also really glad that I get to have this mass mystery category with Athon on on the phone on the battle with me because I think the mystery category needs to be Greeks.

If you don't know your Greeks when it comes to selling volatility, theta, gamma, delta, um, then what are you doing owning this stuff?

If you don't understand those terminologies and how it plays with respect to how selling volatility works, um, then you shouldn't be using it.

And so to that extent, if you don't know your Greeks, Ethan, I'm glad to know you, but uh then you shouldn't be in this strategy.

Yes, exactly.

And we know our Greeks.

Ethan's representing our Greeks very well.

What do you have to say about that, Ethan?

Yeah.

No, it's uh Yeah, you got to know all the good.

Luckily, I just I still know the Greek alphabet and stuff, but yeah, I think that's a really important point.

Really understanding the relationships between, you know, how these things move between price and and volatility.

You got to it's these are very complex products.

So, uh, you really have to be well informed.

So, that's a good thing that Mike brought up.

Ethan, I know you go to Greece like what, like once a year.

You're you're fluent in Greek, aren't you?

Yeah, I grew up speaking Greek.

Uh, my my parents are immigrants, so uh, luckily I most my family's there.

So, uh, they don't talk as much about these kind of Greeks.

They Yeah, they're talking about other kinds of Greeks.

Probably the delicious Greek food, you know.

Yeah, all the food.

But, yeah, I go back pretty much every year.

Nice.

Well, uh, this takes us now to the part of the program where our judges are going to give us their overall battle winner.

So, um, by the way, Mike, I forgot to ask you about the Greeks.

Was was that a split decision on the your mystery category?

No, it there's no there's no winner or loser.

It's just understanding them.

Okay.

Gotcha.

All right.

So, that takes us to our final uh portion of the program where our judges can give us their overall battle winner.

So, uh, let's give it to Mike.

Mike, break it down for us. which of these two ETFs wins it if any.

So no, I think uh I think ESVOL um understanding it in a relative to a overall portfolio construct um positioning it properly, understanding, you know, when you do have those VA spikes, what's inside of your portfolio is going to potentially hedge you from a little bit of that exposure.

Um it it can make sense from a generation of income. uh knowing your tax um consequences of receiving it and all that good stuff of course is important but um but to that to that end if you're just building a portfolio asphall I think that muted portion of that volatility um it makes a lot of sense um it's going to get people to stick to it um and you know with a fullon full inverse the possibility of a complete wipeout is very very real right and I think uh you know I talked about with both of these So, or I would I would say much less so with SVAL, right?

Because you're just you're you're not taking that full-on inverse exposure.

And I don't think you'll get completely wiped out of CV either, but you could get really close.

Um, so I think that's just the reason I would give ESV the winner is it's easier to stomach in terms of how you would play it in context of building a portfolio.

And that's what we do here at ETF Action.

So, that's how I like to talk about it.

Aan, your final chance with your overall winner.

Uh, no, that was great.

And I love the analogy you brought up before about the steamroller.

And I think anyone who's using these should always keep the XIV chart in the back of their mind.

And that chart looks amazing and it literally got wiped out in one day.

That's all it took.

Now to Mike's point, these have been constructed to really try to avoid that.

So the likelihood of having a total wipe out, like you said, is low.

But you're going to have a greater probability or a greater draw down in ZAL.

And like again we're talking about with April and we saw this in 2024 a couple periods like the drops are now very swift and quick in the market.

So um you know not saying that it's a it can it you know it's not a not nonzero chance and for that I just think that asphalt mitigates a lot of that possibility.

It's less likely that's going to happen.

You're still getting a decent yield on it.

It's a different type of strategy.

And so I think the market's also speaking to that and that's why that product has almost a billion in assets and the other one is it's a little bit newer but it's not quite as as big asphalt.

So just overall I think that um you're going to give up some of the yield but I think being able to know that there's not that big chance of a of a wipeout uh will is more advantageous for.

So that would be my overall pick.

Well our judges have spoken and according to the final battle scorecard today's winner is Esfall.

And I think for our judges for the most part agreed um lots of lots of uh yield to be had but at the same time lots of potential red flags here and I think our judges pointed that out.

Um you know the chances for deep deep draw downs and a volatility spike uh are very high and so you have to balance out whether that's worth the time to accept uh that level of risk in exchange for a high yield.

Of course, we all remember XIV.

And if you don't remember, well, then you should Google it or chat GBT it or put it in your AI uh prompt XIV, the wipeout.

Uh that that is a part of the indelible history of volatility products in the ETF market.

And it can happen.

It can happen.

And so, you need to be aware of it.

Again, uh I think our judges did a great job at highlighting all of the pros and cons of volatility focused income ETFs on today's program.

Manas, thank you very much for that uh excellent recommendation.

We even talked about some Greeks, too.

I always love to include the the Greeks in the conversation.

So, that that was also a good point made by Mike.

Again, great job, Ethan and Mike, for sharing your timely insights.

Awesome.

Thanks for having me, Ryan.

Yeah, this was great.

Nice to see you guys.

Be sure to visit the description section below.

We've got uh links to both of our program judges, so be sure to get in touch.

Also, we've got links to our program sponsor, Direction.

Go to direction.com.

I'm Ronda Ley.

Thanks for watching ETF Battles.

We'll see you on the next show.