10-Q: VS Trust Q3 2025: Mixed Performance for VIX Futures ETFs

VS Trust reports varied Q3 2025 results for its VIX futures ETFs, with SVIX showing strong gains while UVIX experienced significant losses.

Summary

• The -1x Short VIX Futures ETF (SVIX) reported a net increase in net assets from operations of $64,904,102 for the three months ended September 30, 2025, a significant improvement from a net decrease of $(30,749,661) in the prior year period.
• SVIX's total return at Net Asset Value (NAV) for Q3 2025 was 37.38%, contrasting sharply with a -43.33% return in Q3 2024.
• The 2x Long VIX Futures ETF (UVIX) experienced a substantial net decrease in net assets from operations of $(461,416,502) for Q3 2025, significantly worse than the $(6,092,035) decrease in Q3 2024.
• UVIX's total return at NAV for Q3 2025 was -55.45%, compared to -14.31% in Q3 2024, indicating poor performance for long VIX exposure.
• For the nine months ended September 30, 2025, SVIX had a net decrease in net assets from operations of $(15,807,416), while UVIX had a net decrease of $(475,006,114).
• Total Trust interest income for the nine months ended September 30, 2025, increased to $10,071,260 from $3,945,462 in the prior year period.
• UVIX underwent a 1:10 reverse stock split on January 15, 2025, adjusted as if it occurred at the commencement of operations.
• As of September 30, 2025, SVIX's net assets were $165,140,059, and UVIX's net assets were $534,186,909.

Sentiment

Score: 4

Explanation: While SVIX showed strong positive returns for the quarter, UVIX experienced substantial losses, reflecting the inherent volatility and compounding risks of leveraged VIX futures products. The overall financial health of the trust is mixed, with significant capital inflows for UVIX but poor operational performance, leading to a net operational loss for the trust that is significantly worse year-over-year.

Positives

• SVIX achieved a strong positive total return at NAV of 37.38% for the three months ended September 30, 2025, a significant turnaround from a -43.33% return in the same period last year.
• SVIX recorded a net realized gain on futures of $78,088,785 for Q3 2025, reversing a loss of $(28,508,230) in Q3 2024.
• Total Trust interest income for the nine months ended September 30, 2025, increased substantially to $10,071,260 from $3,945,462 in the prior year period.
• UVIX saw a significant increase in Net Assets to $534,186,909 as of September 30, 2025, from $187,711,259 at December 31, 2024, indicating substantial capital inflows through share sales.
• The Trust maintains effective disclosure controls and procedures as of September 30, 2025.

Negatives

• UVIX experienced a substantial net decrease in net assets resulting from operations of $(461,416,502) for the three months ended September 30, 2025, and $(475,006,114) for the nine months ended September 30, 2025.
• UVIX's total return at NAV was a significant -55.45% for Q3 2025 and -70.70% for the nine months ended September 30, 2025, reflecting poor performance for long VIX exposure.
• UVIX recorded a large net realized loss on futures of $(499,794,282) for Q3 2025.
• SVIX's net assets decreased to $165,140,059 from $300,123,823 since December 31, 2024, despite positive Q3 operational results, likely due to net capital share redemptions.
• The overall net decrease in net assets resulting from operations for the Trust (SVIX + UVIX) for the nine months ended September 30, 2025, was $(490,813,530), significantly worse than the $(41,311,030) decrease in the prior year period.

Risks

• **Correlation and Compounding Risk:** The Funds do not seek to achieve their stated investment objective over a period greater than a single day. Longer holding periods, higher benchmark volatility, inverse exposure, and greater leverage can dramatically and adversely affect longer-term performance.
• **Volatility Risk:** Each Fund uses leverage and should produce daily returns that are more volatile than its benchmark. UVIX, with a 2x multiplier, could experience a total loss if the benchmark moves 50% contrary to its objective in a single day.
• **Tracking Error Risk:** Factors such as the Sponsor's ability to purchase/sell Financial Instruments, imperfect correlation, bid-ask spreads, fees, illiquid markets, rounding, benchmark changes, regulatory requirements, and early market closings can prevent a Fund from achieving a high degree of correlation with its benchmark.
• **Increased Trading Costs:** Daily portfolio rebalancing to maintain exposure can lead to increased trading costs.
• **Counterparty Risk:** Exposure to the credit risk of counterparties for derivatives, especially OTC derivatives. Default or bankruptcy of a counterparty could lead to significant losses.
• **Regulatory Treatment Risk:** Derivatives are subject to evolving regulations (Dodd-Frank Act, CFTC rules), and changes could materially and adversely impact the Funds. Lack of CFTC regulation for some swaps/forwards could expose investors to losses.
• **Leverage Risk:** The use of leverage increases the risk of total loss, even over short periods.
• **Liquidity Risk:** Financial Instruments cannot always be liquidated at desired prices, especially with large positions or market disruptions, potentially causing losses.
• **Contango and Backwardation Risk:** Rolling futures contracts can have a negative impact on performance, particularly in contango markets where longer-term contracts are more expensive than shorter-term ones, which has frequently been the case for VIX futures.
• **Natural Disaster/Epidemic Risk:** Events like pandemics (e.g., COVID-19) can disrupt economies and markets, leading to increased volatility, market losses, and difficulty in achieving investment objectives.
• **Risk that Current Assumptions and Expectations Could Become Outdated:** Global economic shocks can quickly render underlying assumptions inaccurate, leading to significant losses.
• **Position Limits and Accountability Levels:** Investments in futures contracts are subject to limits established by exchanges, which could restrict the Funds' ability to invest, add to positions, or create Creation Units, negatively impacting operations and correlation.

Future Outlook

The Trust's forward-looking statements are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Future period returns for the Funds, before fees and expenses, cannot be simply estimated by multiplying the benchmark return by their respective leverage factors due to compounding and other market dynamics. The Trust will continue to operate as an emerging growth company, taking advantage of certain reporting exemptions until it no longer qualifies based on specified financial or time-based thresholds.

Management Comments

• "Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report."
• "Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report."
• "Trust management has evaluated the effectiveness of the Trusts and the Funds disclosure controls and procedures, and have concluded that the disclosure controls and procedures of the Trust and the Funds... were effective, as of September 30, 2022, including providing reasonable assurance that information required to be disclosed in the reports that the Trust files or submits under the 1934 Act on behalf of the Trust and the Funds is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that such information is accumulated and communicated to management... as appropriate to allow timely decisions regarding required disclosure."

Industry Context

The Funds operate in the specialized market of VIX futures ETFs, providing leveraged or inverse exposure to VIX futures indices. These products are distinct from direct VIX exposure and are primarily utilized by sophisticated investors for short-term tactical trading or hedging against market volatility. The significant divergence in performance between SVIX (short volatility) and UVIX (long volatility) in Q3 2025 suggests a market environment characterized by declining or less volatile VIX futures prices, which typically benefits short volatility strategies and penalizes long volatility strategies due to factors like contango in the VIX futures curve.

Comparison to Industry Standards

• The Funds explicitly state that their investment objective is for a single day, and longer-term returns will differ from simple multiples of the benchmark due to compounding and volatility, which is a standard characteristic and warning for leveraged and inverse ETFs.
• The expense ratios for both funds (SVIX: 2.29%, UVIX: 1.95% for Q3 2025) are relatively high, which is common for complex, derivative-based ETFs in niche markets like volatility, reflecting the specialized management and operational costs.
• The disclosure of risks such as 'imperfect correlation' and 'contango and backwardation risk' are standard for VIX futures products, indicating that the Funds acknowledge and operate within the known challenges of this market segment.
• No specific comparable companies, projects, or global benchmarks are detailed in the filing for a direct comparative assessment of results.

Management Changes

Corporate Governance

Legal Proceedings

• None.

Related Party Transactions

• The Sponsor, Volatility Shares LLC, receives a management fee from each Fund (1.35% per annum of average daily net assets for SVIX, 1.65% for UVIX) for trading advisory and other services.
• The Sponsor previously oversaw and paid Penserra Capital Management LLC an annual sub-advisory fee of 0.20% for its services as commodity sub-adviser prior to September 16, 2024.
• The Sponsor pays normal and expected expenses incurred in connection with the continuous offering of Shares of a Fund after the commencement of its trading operations.
• Counterparties to derivative transactions and/or their affiliates may also be Authorized Participants or shareholders of a Fund.

Stakeholder Impact

• **Shareholders (SVIX):** Experienced significant positive returns in Q3 2025, but overall negative returns for the nine-month period, indicating high short-term volatility and risk.
• **Shareholders (UVIX):** Experienced substantial negative returns in both Q3 and the nine-month period of 2025, highlighting the significant risks of long volatility exposure in certain market conditions.
• **Authorized Participants:** Continue to facilitate the creation and redemption of Creation Units, earning transaction fees for their services.
• **Sponsor (Volatility Shares LLC):** Benefits from management fees based on the Funds' average daily net assets, while also bearing certain operational and offering costs.
• **Service Providers:** U.S. Bancorp Fund Services, LLC and Foreside Fund Services, LLC continue to provide administrative, accounting, transfer agent, custodian, and marketing services, receiving fees from the Funds.
• **Creditors/Counterparties:** Exposed to credit risk from the Funds' derivative transactions, mitigated by collateral arrangements, but still subject to potential delays or limited recovery in bankruptcy scenarios.

Next Steps

• The Trust will continue to operate as an emerging growth company, taking advantage of certain reporting exemptions until it no longer qualifies.
• Management will continue to monitor its tax positions taken under interpretation to determine if adjustments are necessary.
• The Sponsor regularly reviews the performance of its counterparties for creditworthiness and execution quality and periodically considers the addition of new counterparties.

Key Dates

Recommendation

The filing clearly illustrates the extreme volatility and compounding effects inherent in leveraged and inverse VIX futures ETFs. While SVIX had a strong quarter, UVIX suffered substantial losses, demonstrating the high-risk, short-term nature of these products. Investors should only consider these funds for very specific, short-term tactical positions or hedging strategies, and actively monitor their investments. For long-term investors, the risks of significant capital erosion due to compounding and contango are pronounced, making a 'hold' recommendation appropriate for existing, informed investors, while cautioning new investors about the specialized and high-risk nature of these products.

Keywords

VIX Futures ETF, Volatility, Leveraged ETF, Inverse ETF, SVIX, UVIX, Commodity Pool, Derivative Instruments, Futures Contracts, Options Contracts, SEC Filing, Quarterly Report, Financial Performance, Risk Management, Market Risk, Contango, Backwardation