S-1/A: ProShares Trust II Files Amendment for Multiple ETFs, Including VIX and Natural Gas Funds

ProShares Trust II updates its registration statement to include several exchange-traded funds (ETFs) focusing on VIX futures, natural gas, precious metals, and currency markets.

Summary

• ProShares Trust II filed a pre-effective amendment to its Form S-1 registration statement.
• The filing concerns multiple ETFs, including ProShares VIX Mid-Term Futures ETF, ProShares Ultra Bloomberg Natural Gas, and ProShares UltraShort Bloomberg Natural Gas.
• Other ETFs covered include those focused on silver, gold, euro, and yen, offering both leveraged and inverse leveraged exposure.
• The ETFs aim to provide investment results corresponding to specific benchmarks, with some geared to deliver multiples or inverse multiples of daily performance.
• The document emphasizes the significant risks associated with investing in these ETFs, particularly the geared funds that use leverage.
• The ETFs continuously offer and redeem shares in Creation Units, available only to Authorized Participants.
• The document includes a risk factor summary, descriptions of benchmarks, investment objectives, and financial information.
• The filing also details management, administration, custody, and distribution arrangements.
• The document mentions ongoing geopolitical events, such as Russia's actions against Ukraine and the Israel-Hamas conflict, which may impact commodity markets.

Sentiment

Score: 6

Explanation: The document is primarily informational, with a neutral tone. While it highlights risks, it also presents opportunities for investors seeking specific market exposures. The sentiment is therefore moderately positive.

Positives

• The ETFs provide investors with exposure to a range of markets, including volatility, commodities, and currencies.
• Authorized Participants can create and redeem shares, potentially improving market efficiency.
• The document provides detailed information on investment objectives, strategies, and risks.

Negatives

• Investing in these ETFs involves significant risks, including the potential for total loss of principal.
• Geared funds are subject to compounding, which can cause returns to deviate significantly from the stated multiple of the benchmark.
• The VIX Futures Fund's performance can be very different from the actual volatility of the S&P 500 or the VIX index.
• The Natural Gas Funds are not directly linked to the spot price of natural gas, which can lead to performance differences.

Risks

• Geared funds may experience a total loss of investment within a single day due to leverage.
• Compounding can significantly impact the performance of geared funds over longer periods.
• The VIX Futures Fund is subject to risks relating to investing in VIX futures contracts.
• Natural disasters and public health disruptions may negatively impact fund performance.
• Regulatory and exchange limits may restrict the creation of Creation Units.
• The insolvency of a futures commission merchant (FCM) or clearinghouse may result in losses to the Funds.
• The use of derivatives, such as swap agreements may expose the Funds to significant loss, liquidity risk, counterparty credit risk and other risks.

Future Outlook

The document does not provide specific forward-looking guidance, but it mentions potential impacts from geopolitical events and regulatory changes.

Industry Context

This announcement reflects the ongoing development and refinement of specialized ETFs designed to provide targeted exposure to various market segments, including volatility and commodities. The use of leverage and inverse strategies is a common feature in this space, catering to sophisticated investors seeking to express specific market views.

Comparison to Industry Standards

• ProShares offers a range of leveraged and inverse ETFs, similar to those offered by Direxion and other providers.
• The use of VIX futures contracts is a common strategy for gaining exposure to market volatility, as seen in products from iPath and VelocityShares.
• Natural gas ETFs are benchmarked against indices like the Bloomberg Natural Gas Subindex, similar to how other commodity ETFs track specific commodity indices.
• The expense ratios and trading volumes of these ProShares ETFs are generally comparable to other similar products in the market.

Legal Proceedings

• The document mentions a previously dismissed class action lawsuit, In re ProShares Trust II Securities Litigation, and a voluntarily dismissed lawsuit, Di Scala v. ProShares Ultra Bloomberg Crude Oil, et al.

Stakeholder Impact

• Shareholders are exposed to the risks associated with leveraged and inverse ETFs.
• Authorized Participants are able to create and redeem Creation Units, potentially affecting market liquidity.
• The Sponsor is responsible for managing the ETFs and ensuring compliance with regulations.

Next Steps

• The SEC will review the amended registration statement.
• The ETFs will be offered to the public after the registration statement becomes effective.

Key Dates