10-Q: Dynamic Short Short-Term Volatility Futures ETF Transfers Listing to Cboe BZX Amidst Quarterly Losses

The Dynamic Short Short-Term Volatility Futures ETF experienced a net decrease in assets and transferred its listing from NYSE Arca to Cboe BZX during the quarter ending September 30, 2024.

Summary

• The Dynamic Short Short-Term Volatility Futures ETF (WEIX) reported a net decrease in assets resulting from operations of $1,077,408 for the three months ended September 30, 2024.
• This decrease is primarily due to a net realized loss of $1,069,962 on futures contracts and a change in net unrealized depreciation of $38,881.
• The fund's net asset value (NAV) per share decreased from $30.44 to $26.17 during the quarter.
• The fund also completed a transfer of its listing from the New York Stock Exchange (NYSE Arca) to the Chicago Board Options Exchange (Cboe BZX) on September 30, 2024.
• The fund's total assets decreased from $6,957,471 on December 31, 2023 to $5,261,307 on September 30, 2024.
• The fund's shares outstanding remained at 200,005 at the end of the quarter, after issuing and redeeming 50,000 shares each.
• The fund's investment strategy involves taking short positions in VIX futures contracts, with a notional exposure ranging from -0.1 to -0.5 under normal circumstances.

Sentiment

Score: 3

Explanation: The document presents a negative outlook due to the significant net loss, decrease in NAV, and the inherent risks associated with the fund's investment strategy. The transfer of listing is a positive operational change, but does not offset the negative financial results.

Positives

• The transfer of listing to Cboe BZX is expected to better meet the evolving needs of the Trust and its shareholders.
• The fund maintains a diversified portfolio of short-term investments and futures contracts.

Negatives

• The fund experienced a significant net loss of $1,077,408 for the quarter.
• The fund's net asset value per share decreased by 14.03% during the quarter.
• The fund's total assets decreased by approximately $1.7 million since the end of 2023.

Risks

• The fund is subject to correlation and compounding risk, which can cause its performance to differ from its benchmark.
• The fund is exposed to counterparty risk when using derivatives.
• The fund's use of leverage can magnify losses.
• The fund is subject to liquidity risk, as some of its investments may be less liquid.
• The fund is exposed to contango and backwardation risk when rolling futures contracts.
• The fund is subject to market risk, including equity market volatility sensitivity.
• The fund is subject to natural disaster and epidemic risk, which can disrupt markets and economies.
• The fund is subject to the risk that current assumptions and expectations could become outdated due to global economic shocks.

Future Outlook

The document contains forward-looking statements regarding future business and financial performance, anticipated sales growth, competition, expenses, and other factors, but cautions that actual results may differ materially due to various risks and uncertainties. The fund does not assume any responsibility for the accuracy or completeness of these forward-looking statements and does not undertake any obligation to update or revise them.

Management Comments

• The decision to transfer the listing to Cboe BZX was part of an ongoing evaluation of exchange platforms to better meet the evolving needs of the Trust and its shareholders.
• The transfer is not expected to impact the trading or liquidity of the Trust's shares.

Industry Context

The fund operates in the market for volatility-linked exchange-traded products, which are influenced by investor sentiment, market volatility, and the performance of the VIX index. The transfer of listing to Cboe BZX is a strategic move that may be aimed at reducing costs or improving trading conditions.

Comparison to Industry Standards

• The fund's performance is highly dependent on the volatility of the VIX index and the performance of VIX futures contracts, making direct comparisons to traditional equity or fixed-income ETFs difficult.
• Other similar volatility-linked ETFs include those offered by ProShares and VelocityShares, which also experience significant fluctuations in value based on market volatility.
• The fund's management fee of 1.85% is relatively high compared to broad market ETFs, but is typical for specialized products that require active management and complex trading strategies.
• The fund's use of leverage and inverse exposure is common among volatility-linked products, but also increases the risk of significant losses.

Stakeholder Impact

• Shareholders experienced a decrease in the value of their investment due to the fund's negative performance.
• Authorized Participants may be affected by the changes in the fund's trading venue and the associated transaction fees.
• The fund's service providers, such as the administrator, custodian, and transfer agent, are impacted by the fund's operations and the transfer of listing.

Key Dates

Keywords

Volatility Futures, VIX, ETF, Derivatives, Short Positions, Cboe BZX, NYSE Arca, Leverage, Contango, Backwardation