10-Q: ProShares Trust II Reports Strong Q2 Net Income Growth

ProShares Trust II reported a significant increase in net income for the first half of 2025, driven by substantial realized gains, despite mixed performance across its diverse range of leveraged and inverse ETFs.

Summary

• ProShares Trust II, the registrant, reported a net income of $598,726,498 for the six months ended June 30, 2025, a substantial increase from $8,561,527 in the same period of 2024.
• Total shareholders' equity for the Trust increased to $3,651,955,802 as of June 30, 2025, up from $3,025,133,601 at December 31, 2024.
• The increase in net income was primarily driven by a significant rise in net realized gains on futures contracts and swap agreements, totaling $653,081,996 for the six months ended June 30, 2025, compared to $140,335,396 in the prior year period.
• Net investment income for the combined Trust decreased to $41,766,036 for the six months ended June 30, 2025, from $48,532,135 in the comparable 2024 period.
• Several individual funds, including ProShares Ultra Bloomberg Natural Gas, Ultra Euro, Ultra Gold, Ultra Silver, Ultra VIX Short-Term Futures ETF, Ultra Yen, UltraShort Bloomberg Crude Oil, UltraShort Gold, VIX Mid-Term Futures ETF, and VIX Short-Term Futures ETF, showed improved net income or shifted from losses to gains compared to the prior year.
• Conversely, some funds experienced net asset value (NAV) per share depreciation for the six months ended June 30, 2025, such as ProShares Short VIX Short-Term Futures ETF (-14.8%), Ultra Bloomberg Crude Oil (-18.2%), Ultra Bloomberg Natural Gas (-15.5%), Ultra VIX Short-Term Futures ETF (-10.0%), UltraShort Bloomberg Natural Gas (-41.7%), UltraShort Euro (-21.4%), UltraShort Gold (-36.1%), UltraShort Silver (-38.6%), and UltraShort Yen (-13.2%).
• The daily performance of all funds maintained a high statistical correlation (over 0.99) to their respective benchmarks, indicating effective daily rebalancing strategies.
• Share splits and reverse share splits were executed for several funds in April and November 2024, and June 2025, which adjusted the number of shares outstanding and per-share prices without changing the aggregate net asset value of shareholder investments.

Sentiment

Score: 7

Explanation: The overall financial results for ProShares Trust II are significantly positive, driven by substantial realized gains and a dramatic increase in net income compared to the prior year. Many individual funds also showed improved profitability. However, the inherent risks of leveraged and inverse products, particularly the compounding effect leading to NAV depreciation for several funds over longer periods, and ongoing regulatory scrutiny, temper the overall positive sentiment. The strong daily correlation to benchmarks is a positive operational indicator.

Positives

• Combined Trust net income significantly increased to $598.7 million for the six months ended June 30, 2025, up from $8.6 million in the prior year, indicating strong overall profitability.
• Net realized gains on investments for the combined Trust surged to $653.1 million, a substantial improvement from $140.3 million in the previous year, reflecting successful trading activities.
• ProShares Ultra Gold (UGL) and Ultra Silver (AGQ) demonstrated strong NAV per share appreciation of +47.2% and +40.2% respectively for the six months ended June 30, 2025, along with increased net income.
• ProShares Ultra Euro (ULE) and Ultra Yen (YCL) also showed robust NAV per share appreciation of +28.1% and +15.3% respectively, coupled with improved net income, indicating favorable currency movements for these funds.
• Several funds, including ProShares Ultra Bloomberg Natural Gas (BOIL), Ultra VIX Short-Term Futures ETF (UVXY), VIX Mid-Term Futures ETF (VIXM), and VIX Short-Term Futures ETF (VIXY), transitioned from net losses in the prior year to significant net income in the current period, reflecting improved market conditions for their underlying assets.
• The consistent high statistical correlation (over 0.99) between the daily performance of the funds and their respective benchmarks indicates effective management and tracking of investment objectives on a daily basis.

Negatives

• Net investment income for the combined Trust decreased to $41.8 million for the six months ended June 30, 2025, down from $48.5 million in the prior year, suggesting higher operational costs or lower interest income relative to assets.
• Despite overall positive net income for the Trust, several individual leveraged and inverse funds experienced significant NAV per share depreciation for the six months ended June 30, 2025, including UltraShort Bloomberg Natural Gas (-41.7%), UltraShort Gold (-36.1%), UltraShort Silver (-38.6%), and UltraShort Euro (-21.4%).
• ProShares Short VIX Short-Term Futures ETF (SVXY) and ProShares Ultra Bloomberg Crude Oil (UCO) reported net losses of $(333,868) and $(50,153,966) respectively for the six months ended June 30, 2025, a significant decline from positive net incomes in the prior year.
• The inherent 'compounding risk' for Geared Funds means that returns over periods longer than a single day will likely differ significantly from the stated multiple of the benchmark, potentially leading to losses even if the benchmark moves favorably over the longer term.
• Some funds, such as ProShares UltraShort Silver and UltraShort Yen, continued to report net losses for the six months ended June 30, 2025, with UltraShort Silver's loss increasing compared to the prior year.

Risks

• **Correlation and Holding Period Risk**: Geared Funds (leveraged/inverse) do not seek to achieve their daily target for periods longer than a single day due to mathematical compounding, which can lead to significant deviations and potential losses even if the benchmark moves favorably over longer periods. Higher benchmark volatility and longer holding periods exacerbate this effect.
• **Market Illiquidity**: Financial Instruments cannot always be liquidated at desired prices, especially with small volumes or market disruptions. The large size of positions held by the Funds increases the risk of illiquidity and potential losses during liquidation.
• **Contango and Backwardation Risk**: The rolling of futures contracts can significantly impact performance. Contango (where distant delivery prices are higher than near-term prices) adversely affects Ultra/Matching VIX Funds and positively affects Short/UltraShort Funds. Backwardation (where near-term prices are higher) has the opposite effect. Extraordinary market conditions can lead to significant losses.
• **Position Limits**: Exchanges may impose position limits, which could restrict the Sponsor's ability to manage fund exposure, add to existing positions, or create new Creation Units, potentially decreasing a Fund's correlation to its benchmark and negatively impacting performance.
• **Natural Disasters and Public Health Disruptions**: Events such as pandemics (e.g., COVID-19) and geopolitical conflicts (e.g., Russia-Ukraine, Israel-Hamas) can cause extreme market volatility, illiquidity, trading suspensions, and increased margin requirements, which may prevent a Fund from achieving its investment objective and lead to significant losses.
• **Trade Disputes**: Escalating tariffs, embargoes, and other trade limitations can adversely affect global economies, company profitability, and currency exchange rates, thereby negatively impacting fund performance.
• **Government Regulation**: The Financial Industry Regulatory Authority (FINRA) is considering measures that could prevent or restrict investors from buying 'complex products' like leveraged and inverse leveraged funds, which could limit investor access to these funds.
• **Counterparty Risk**: Funds are exposed to the credit risk of counterparties in derivative transactions (swaps, forwards). While collateral is generally required, delays or insufficiency of collateral in the event of a counterparty's default or bankruptcy could lead to losses.

Future Outlook

The management discussion and analysis section contains forward-looking statements that are subject to inherent uncertainties, risks, and changes in circumstances, including geopolitical conflicts, world health crises, global economic markets, rising interest rates, regulatory and exchange limits, and market competition. The Trust does not assume responsibility to update these statements.

Management Comments

• The Geared Funds do not seek to achieve their stated investment objectives over a period of time greater than a single day because mathematical compounding prevents the Geared Funds from achieving such results.
• Shareholders who invest in the Geared Funds should actively manage and monitor their investments, as frequently as daily.
• The Sponsor attempts to minimize certain market and credit risks by normally executing and clearing trades with creditworthy counterparties, limiting outstanding amounts due from counterparties, not posting margin directly with a counterparty, requiring collateral, limiting margin posted at FCMs, and ensuring deliverable contracts are not held to delivery date.

Industry Context

The filing highlights the inherent complexities and risks associated with leveraged and inverse exchange-traded funds (ETFs) that utilize derivatives like futures, swaps, and forward contracts to achieve daily investment objectives. The performance of these funds is highly sensitive to the daily movements of underlying commodities (crude oil, natural gas, gold, silver), currencies (Euro, Yen), and volatility indices (VIX). The discussion of 'contango' and 'backwardation' underscores the unique challenges in managing futures-based products. Furthermore, the mention of FINRA's potential regulations on 'complex products' reflects a broader industry trend of increased regulatory scrutiny on such investment vehicles, which could impact investor access and market dynamics.

Comparison to Industry Standards

• The funds consistently achieved a high statistical correlation (over 0.99) between their daily performance and their respective benchmarks, indicating effective daily tracking against their stated objectives.
• The filing explicitly reiterates that the 'Geared Funds' (leveraged and inverse) are not designed to achieve their stated investment objectives over periods longer than a single day due to the mathematical effects of compounding, a known characteristic and risk factor for all leveraged/inverse ETFs in the industry.
• The expense ratios for most funds, excluding brokerage commissions and futures account fees, are consistently at 0.95% or 0.85% (for Matching VIX Funds), which can be compared to industry averages for similar specialized ETF products.

Corporate Governance

Legal Proceedings

• As of June 30, 2025, the Trust is not a party to any material legal proceedings.

Related Party Transactions

• The Sponsor (ProShare Capital Management LLC) receives a Management Fee from each Fund (0.95% per annum for Leveraged and Geared VIX Funds, 0.85% for Matching VIX Funds) and pays for most routine operational, administrative, and ordinary expenses of the Funds.
• ProFunds Distributors, Inc., an affiliated broker-dealer of the Sponsor, is involved in distribution services.
• The Sponsor is currently paying brokerage commissions on VIX futures contracts for the Matching VIX Funds that exceed variable create/redeem fees collected by more than 0.02% of the Matching VIX Funds average net assets annually.

Stakeholder Impact

• **Shareholders**: Experienced significant overall net income growth for the Trust, but individual fund performance varied widely, with many leveraged/inverse funds showing NAV depreciation due to compounding effects. Shareholders in these specific funds may have experienced losses over the six-month period. The share splits and reverse splits are administrative and do not change the aggregate value of their holdings.
• **Management/Sponsor**: Benefited from increased management fees due to higher average net assets in some funds, despite some funds experiencing NAV depreciation. The Sponsor continues to manage operational and administrative expenses from the management fee.
• **Service Providers**: BNY Mellon (Administrator, Custodian, Transfer Agent) and SEI Investments Distribution Co. (Distributor) continue to provide services, with their fees paid by the Sponsor from the management fee.

Next Steps

• The Sponsor will continue to monitor and adjust positions in Financial Instruments daily to maintain exposure consistent with each Fund's investment objective.
• Management will continue to evaluate the impact of recently issued accounting pronouncements (ASU 2023-09) on future financial statements.
• The Trust will continue to monitor tax positions and regulatory developments, including potential FINRA measures regarding 'complex products'.

Key Dates

Recommendation

The overall financial performance of ProShares Trust II, as evidenced by the significant increase in net income and strong realized gains, is positive. However, the underlying nature of its leveraged and inverse ETFs introduces substantial risks, particularly the compounding effect that can lead to significant NAV depreciation over holding periods longer than a single day, as seen in several funds. While the Trust demonstrates effective daily tracking, the long-term performance for investors in geared products is highly unpredictable and dependent on market volatility and holding duration. Given the mixed performance of individual funds and the inherent structural risks, a 'hold' recommendation is appropriate for existing investors who understand these complexities, while new investors should exercise extreme caution and conduct thorough due diligence before considering an investment.

Keywords

ETFs, Leveraged ETFs, Inverse ETFs, Commodity Futures, VIX Futures, Currency ETFs, Financial Instruments, Derivatives, SEC Filing, Quarterly Report, Investment Management, Risk Management, Market Volatility, Contango, Backwardation, Share Splits