10-Q: VS Trust ETFs Face Steep Losses Amid Volatility Swings

VS Trust's -1x Short VIX Futures ETF (SVIX) and 2x Long VIX Futures ETF (UVIX) reported significant net asset declines for the six months ended June 30, 2025, driven by adverse market movements in VIX futures.

Summary

• VS Trust's -1x Short VIX Futures ETF (SVIX) and 2x Long VIX Futures ETF (UVIX) experienced substantial decreases in net assets from operations for the six months ended June 30, 2025.
• SVIX reported a net decrease in net assets from operations of $80,711,519 for the six months ended June 30, 2025, a significant decline from a $51,539,818 increase in the prior year period.
• UVIX reported a net decrease in net assets from operations of $13,589,613 for the six months ended June 30, 2025, an improvement from a $56,009,152 decrease in the prior year period.
• SVIX's Net Asset Value (NAV) per share dropped to $15.57 as of June 30, 2025, from $25.39 at the beginning of the six-month period.
• UVIX's NAV per share dropped to $22.31 as of June 30, 2025, from $33.93 at the beginning of the six-month period.
• Total return at NAV for SVIX was -38.68% for the six months ended June 30, 2025, compared to 26.39% for the same period in 2024.
• Total return at NAV for UVIX was -34.25% for the six months ended June 30, 2025, compared to -59.73% for the same period in 2024.
• Both funds saw an increase in interest income, with the total Trust interest income rising to $6,172,711 for the six months ended June 30, 2025, from $1,644,297 in the prior year period.
• A 1:10 reverse stock split for 2x Long VIX Futures ETF (UVIX) was effective on January 15, 2025.

Sentiment

Score: 3

Explanation: The financial performance for both ETFs was significantly negative, with substantial losses in net assets and total returns. While UVIX showed some relative improvement in reducing losses compared to the prior year, the overall picture is one of underperformance. The extensive risk disclosures highlight the inherent volatility and complexity of these products, reinforcing a cautious outlook.

Positives

• Net investment income for SVIX improved significantly to $1,024,214 for the six months ended June 30, 2025, from a loss of $115,678 in the prior year period.
• Net investment income for UVIX showed a reduced loss of $63,562 for the six months ended June 30, 2025, compared to a loss of $345,304 in the prior year period.
• UVIX recorded a net realized gain on investments and futures contracts of $72,972,541 for the six months ended June 30, 2025, a reversal from a $60,257,560 loss in the prior year period.
• Both funds experienced an increase in interest income, reflecting potentially higher yields on short-term investments.
• Expense ratios for both SVIX (1.58%) and UVIX (1.94%) decreased slightly for the six months ended June 30, 2025, compared to the prior year period (1.69% and 2.40% respectively).

Negatives

• SVIX incurred a substantial net realized loss on investments and futures contracts of $101,647,778 for the six months ended June 30, 2025, contrasting with a gain in the prior year.
• Both SVIX and UVIX experienced significant negative total returns at NAV and market value for the six months ended June 30, 2025, indicating poor performance.
• Net Asset Value per share for both SVIX and UVIX declined significantly during the reporting period.
• UVIX recorded a large net change in unrealized depreciation of $86,498,592 for the six months ended June 30, 2025, offsetting its realized gains.

Risks

• Correlation and Compounding Risk: The funds do not seek to achieve their stated investment objective over periods greater than a single day, and returns for longer periods will differ due to compounding, volatility, and daily rebalancing.
• Leverage Risk: The use of leverage increases the risk of total loss, even over periods as short as a single day, with a single-day movement of 50% contrary to the objective potentially leading to total loss.
• Liquidity Risk: Financial instruments may not always be liquidated at desired prices, and market disruptions or large position sizes can exacerbate illiquidity and losses.
• Contango and Backwardation Risk: VIX futures prices frequently reflect higher expected volatility levels further out in time (contango), which can result in losses when rolling futures contracts to maintain constant weighted average maturity.
• Counterparty Risk: Funds are exposed to the credit risk of counterparties in derivative transactions, with potential for significant losses if a counterparty defaults or becomes bankrupt, despite collateral arrangements.
• Market Volatility: The funds are highly sensitive to equity market volatility, and extreme movements can prevent prompt liquidation of positions, leading to substantial losses.
• Operational Risks: Factors such as imperfect correlation between financial instruments and benchmarks, bid-ask spreads, fees, illiquid markets, and regulatory changes can prevent the funds from achieving their investment objectives.
• Natural Disaster/Epidemic Risk: Such events can disrupt economies and markets, increasing volatility and potentially impacting fund performance and trading.
• Risk that Current Assumptions and Expectations Could Become Outdated: Global economic shocks can quickly render underlying assumptions inaccurate, leading to significant losses.

Future Outlook

The filing contains standard disclaimers regarding forward-looking statements, noting that they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict and are outside the Funds' control. It explicitly states that forward-looking statements are not guarantees of future results and that actual results may differ materially due to market factors, regulatory changes, and broader economic conditions.

Management Comments

• "None of the Trust, the Sponsor, the Trustee, or the Administrator assumes responsibility for the accuracy or completeness of any forward-looking statements."
• "Except as expressly required by federal securities laws, none of the Trust, the Sponsor, the Trustee, or the Administrator is under a duty to update any of the forward-looking statements to conform such statements to actual results or to a change in expectations or predictions."
• "The Funds are not appropriate for all investors and present significant risks not applicable to other types of funds. The Funds use leverage and are riskier than similarly benchmarked exchange-traded funds that do not use leverage."
• "An investor should only consider an investment in a Fund if he or she understands the consequences of seeking daily leveraged or daily inverse investment results. Shareholders who invest in the Funds should actively manage and monitor their investments, as frequently as daily."

Industry Context

The filing operates within the highly specialized and volatile segment of exchange-traded products (ETPs) that track VIX futures. These products are designed for short-term, tactical trading strategies rather than long-term investment, given their daily rebalancing and compounding effects. The performance of these funds is directly tied to the dynamics of VIX futures, which often exhibit contango, a condition where longer-dated futures are more expensive than near-dated ones, leading to a drag on performance for long-term holders, particularly for long volatility products. The significant losses reported by both the short and long VIX futures ETFs highlight the inherent challenges and risks of managing exposure to volatility, especially during periods of fluctuating market sentiment and VIX curve shifts.

Comparison to Industry Standards

• The funds' investment objectives are explicitly stated as seeking daily investment results corresponding to their respective VIX futures indices, not the widely referenced VIX itself. This differentiates them from direct VIX trackers and implies different performance characteristics.
• The filing emphasizes that the funds are not appropriate for all investors and are riskier than similarly benchmarked ETFs that do not use leverage, aligning with the general understanding of leveraged and inverse ETPs in the market.
• The impact of compounding and daily rebalancing, as detailed in the risks, is a common characteristic and challenge for all leveraged and inverse ETPs, making direct comparisons to unleveraged or non-daily rebalancing products difficult.
• The performance of SVIX and UVIX, both showing significant negative returns, reflects the challenging environment for volatility products, particularly given the contango structure often observed in VIX futures markets, which can erode returns over time for both long and short positions depending on the specific VIX curve dynamics.

Corporate Governance

Related Party Transactions

• Management fees are paid to Volatility Shares LLC (the Sponsor), which also serves as the Trust's commodity pool operator.
• The Sponsor previously oversaw and paid Penserra Capital Management LLC an annual sub-advisory fee (prior to September 16, 2024).
• Authorized Participants, who facilitate creation and redemption of shares, may also be counterparties to derivative transactions or shareholders of the funds.

Stakeholder Impact

• Shareholders: Experienced significant losses in Net Asset Value and total returns for both SVIX and UVIX, indicating a negative impact on investment value.
• Sponsor (Volatility Shares LLC): Continues to receive management fees based on average daily net assets, providing a revenue stream despite fund performance.
• Service Providers (Administrator, Transfer Agent, Custodian, Marketing Agent): Continue to receive fees for their services, partially offset by transaction fees on creation/redemption units.
• Counterparties: Engaged in derivative transactions with the funds, subject to credit risk and collateral arrangements.

Next Steps

• The Sponsor will continue to operate the funds in accordance with applicable CFTC rules.
• The Trust will continue to take advantage of emerging growth company reporting exemptions until it no longer qualifies.

Key Dates

Recommendation

The significant negative returns and substantial losses in net assets for both SVIX and UVIX for the six months ended June 30, 2025, indicate severe underperformance. The inherent risks associated with these leveraged and inverse VIX futures ETFs, including compounding, contango, and high volatility, make them unsuitable for most investors, especially for holding periods longer than a single day. The explicit warnings from management about the suitability of these funds for active, daily management further underscore their speculative nature. Given the poor performance and high-risk profile, a seasoned investor would likely recommend selling or avoiding these products.

Keywords

VIX Futures ETF, Volatility ETF, Leveraged ETF, Inverse ETF, SVIX, UVIX, SEC Filing, Quarterly Report, Financial Performance, Derivative Instruments, Risk Management, VIX Index