10-K: VS Trust Annual Report: SVIX and UVIX Performance, Strategies, and Risk Factors Detailed

VS Trust's 10-K filing reveals the performance of its -1x Short VIX Futures ETF (SVIX) and 2x Long VIX Futures ETF (UVIX), highlighting investment strategies, risk factors, and financial results for the year ended December 31, 2024.

Summary

• VS Trust, a Delaware statutory trust, operates two Funds: -1x Short VIX Futures ETF (SVIX) and 2x Long VIX Futures ETF (UVIX).
• The Funds' shares are listed on the Cboe BZX Exchange.
• SVIX seeks daily investment results that correspond to the inverse performance of the Short VIX Futures Index, while UVIX aims for twice the performance of the Long VIX Futures Index.
• The Sponsor, Volatility Shares LLC, is registered as a Commodity Pool Operator (CPO) and manages the Funds.
• Prior to September 16, 2024, Penserra Capital Management, LLC served as the Funds' commodity sub-adviser.
• The Funds continuously offer and redeem Shares in Creation Units of at least 10,000 Shares to Authorized Participants.
• As of February 28, 2025, there were 7,670,000 shares outstanding for SVIX and 5,827,473 shares outstanding for UVIX.
• SVIX's net assets increased from $125.06 million to $300.12 million, while UVIX's net assets increased from $69.66 million to $187.71 million during 2024.
• Both funds experienced significant changes in per share NAV, with SVIX decreasing by 32.80% and UVIX decreasing by 75.3% due to the cumulative effect of seeking daily investment results tied to their respective indices.
• The report details the Funds' investment strategies, including the use of VIX futures contracts, options, swaps, and forward contracts.
• The Sponsor seeks to mitigate price impacts during rebalancing by limiting VIX ETP participation to no more than 10% of contracts traded on CFE during any Rebalance Period.
• The document outlines various risks, including market risk, credit risk, liquidity risk, correlation risk, and risks associated with contango and backwardation.
• The Funds have adopted a code of ethics and a Cybersecurity Policies and Procedures Plan to manage risks.
• Reverse stock splits were implemented for UVIX to maintain share price, including a 1:10 split on January 15, 2025.
• The report includes financial statements, schedules of investments, and management's discussion and analysis of financial condition and results of operations.

Sentiment

Score: 5

Explanation: The document is neutral in tone, providing factual information about the Funds' performance, strategies, and risks. While the performance was negative, the document focuses on objective reporting rather than expressing optimism or pessimism.

Positives

• Both SVIX and UVIX experienced significant growth in net assets during 2024, indicating increased investor interest.
• The Sponsor actively manages the Funds and seeks to mitigate price impacts during rebalancing.
• The Funds have implemented a code of ethics and a Cybersecurity Policies and Procedures Plan to manage risks.
• The report provides detailed information on the Funds' investment strategies, risk factors, and financial results, promoting transparency for investors.

Negatives

• Both SVIX and UVIX experienced significant decreases in per share NAV during 2024, reflecting the challenges of managing volatility-linked products.
• The Funds are subject to various risks, including market risk, credit risk, liquidity risk, and correlation risk, which could negatively impact performance.
• The Funds' use of leverage increases the risk of total loss of investment, even over short periods.
• The Funds' performance can be significantly affected by compounding, which can lead to results that differ from the stated multiple times the return of their benchmarks.

Risks

• Market risk: Changes in the value of futures contracts and other financial instruments can negatively impact the Funds' performance.
• Credit risk: The Funds are exposed to the risk that counterparties to derivatives contracts may default on their obligations.
• Liquidity risk: The Funds may not be able to liquidate positions at desired prices due to market illiquidity.
• Correlation risk: The Funds may not perfectly track the performance of their benchmarks due to various factors.
• Contango and backwardation risk: Rolling futures contracts can have a positive or negative impact on performance depending on market conditions.
• Leverage risk: The Funds' use of leverage increases the risk of total loss of investment.
• Cybersecurity risk: The Funds are subject to the risk of cyber attacks that could disrupt operations and compromise sensitive information.
• Natural disaster/epidemic risk: Natural disasters and widespread diseases can disrupt economies and markets, impacting the Funds' performance.
• Regulatory risk: Changes in regulations governing derivatives and commodity pools could negatively impact the Funds' operations.

Future Outlook

The document does not provide specific forward-looking statements or guidance beyond the general investment objectives and strategies of the Funds.

Industry Context

This announcement is relevant to the exchange-traded fund (ETF) industry, particularly those funds focused on volatility and VIX futures. The performance and risk disclosures are important for investors considering these types of products, which are known for their complexity and potential for rapid value changes. The document provides insights into the challenges and strategies involved in managing leveraged and inverse volatility ETFs.

Comparison to Industry Standards

• Comparing SVIX and UVIX to similar volatility-linked ETFs like ProShares Short VIX Short-Term Futures ETF (SVXY) and ProShares Ultra VIX Short-Term Futures ETF (UVXY) reveals differences in expense ratios, tracking error, and overall performance.
• SVXY, which also shorts VIX futures, has a lower expense ratio (0.95%) compared to SVIX (1.35%), potentially impacting long-term returns.
• UVXY, a 1.5x leveraged long VIX futures ETF, can be compared to UVIX's 2x leverage to assess the impact of leverage on performance and volatility.
• Analyzing the tracking error of SVIX and UVIX against their respective indices provides insights into the effectiveness of their investment strategies.
• The document's emphasis on risk factors aligns with industry best practices for disclosing the potential downsides of investing in complex ETFs.
• The Sponsor's efforts to mitigate price impacts during rebalancing are consistent with industry efforts to minimize the market impact of large ETF trades.
• The reverse stock splits implemented for UVIX are a common strategy for maintaining share price and attracting investors.

Stakeholder Impact

• Shareholders: The report provides information relevant to shareholders' investment decisions, including performance data, risk factors, and investment strategies.
• Authorized Participants: The report outlines the procedures for creating and redeeming Creation Units, which is important for Authorized Participants.
• Service Providers: The report identifies the various service providers involved in the Funds' operations, such as the Administrator, Custodian, and Marketing Agent.
• Regulators: The report is filed with the SEC and provides information relevant to regulatory oversight of the Funds.

Key Dates

Keywords

UVIX, SVIX, VIX futures, volatility, ETFs, VS Trust, leveraged ETFs, inverse ETFs, financial report, derivatives, risk factors, Commodity Pool Operator, CPO