10-Q: VS Trust Reports Mixed Performance for -1x Short VIX Futures ETF and 2x Long VIX Futures ETF in Q2 2024

VS Trust's Q2 2024 results show a net increase in net assets for the -1x Short VIX Futures ETF and a net decrease for the 2x Long VIX Futures ETF.

Summary

• VS Trust's quarterly report covers the financial results for the -1x Short VIX Futures ETF (SVIX) and the 2x Long VIX Futures ETF (UVIX) for the period ended June 30, 2024.
• 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.
• For the three months ended June 30, 2024, SVIX reported a net increase in net assets resulting from operations of $35,762,685, while UVIX reported a net decrease of $25,946,113.
• SVIX's net asset value (NAV) per share increased from $42.51 to $47.75, and UVIX's NAV per share decreased from $8.68 to $5.52 during the quarter.
• For the six months ended June 30, 2024, SVIX reported a net increase in net assets resulting from operations of $51,539,818, while UVIX reported a net decrease of $56,009,152.
• SVIX's NAV per share increased from $37.78 to $47.75, and UVIX's NAV per share decreased from $13.73 to $5.52 during the six-month period.
• The report details the funds' investments in VIX futures contracts, options, and short-term investments, along with associated risks such as correlation and compounding risk, counterparty risk, and liquidity risk.
• The management fee for SVIX is 1.35% per annum of its average daily net assets, while for UVIX it is 1.65%.

Sentiment

Score: 5

Explanation: The sentiment is neutral as the report presents factual financial data without expressing opinions or predictions. The mixed performance of the two funds balances the overall tone.

Positives

• The -1x Short VIX Futures ETF (SVIX) reported a net increase in net assets resulting from operations for both the three and six months ended June 30, 2024.
• SVIX's net asset value per share increased during both the quarterly and semi-annual periods.
• Interest income for SVIX increased significantly from $74,800 to $744,592 for the three months ended June 30, 2023 and 2024 respectively.
• Interest income for SVIX increased significantly from $121,531 to $1,128,372 for the six months ended June 30, 2023 and 2024 respectively.

Negatives

• The 2x Long VIX Futures ETF (UVIX) experienced a net decrease in net assets resulting from operations for both the three and six months ended June 30, 2024.
• UVIX's net asset value per share decreased during both the quarterly and semi-annual periods.

Risks

• The funds are subject to correlation and compounding risk, which can cause their performance to differ significantly from their stated objectives over periods longer than a single day.
• Counterparty risk exists due to the use of derivatives, particularly OTC swaps, where a counterparty's default could lead to significant losses.
• Leverage risk is inherent in the funds' structure, potentially leading to a total loss of investment even over short periods.
• Liquidity risk could arise if financial instruments cannot be liquidated at the desired price, especially during market disruptions.
• Contango and backwardation risk in futures contracts can impact performance as contracts are rolled over.
• Natural disasters and epidemics, such as COVID-19, can disrupt economies and markets, leading to increased volatility and losses.
• Changes in regulations, particularly those related to derivatives, could materially and adversely impact the funds.
• The funds' ability to achieve a high degree of correlation with their benchmarks is not guaranteed and may be affected by various factors, including market disruptions and large asset flows.

Future Outlook

The discussion and analysis in the report may contain forward-looking statements subject to uncertainties, risks, and changes in circumstances that are difficult to predict and outside of the Funds control, and the Funds actual results may differ materially from those expressed in forward-looking statements.

Industry Context

These funds operate in the niche market of volatility-linked exchange-traded products, which are known for their complexity and potential for significant gains or losses depending on market conditions and the accuracy of their daily tracking.

Comparison to Industry Standards

• Comparing the performance of 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) would provide a benchmark for assessing their tracking efficiency and risk-adjusted returns.
• The expense ratios of 1.35% and 1.65% for SVIX and UVIX, respectively, should be evaluated against the average expense ratios of other leveraged and inverse ETFs to determine their cost competitiveness.
• Analyzing the daily trading volumes and bid-ask spreads of SVIX and UVIX relative to their peers would offer insights into their liquidity and trading efficiency.
• The funds' use of VIX futures contracts and options is a common strategy in the volatility space, but the specific implementation and risk management practices should be compared to industry best practices to ensure investor protection.

Stakeholder Impact

• Shareholders are directly impacted by the funds' performance, with potential for gains or losses depending on market volatility and the funds' ability to track their respective benchmarks.
• Authorized Participants are affected by the creation and redemption transaction fees, which can impact their profitability.
• The Sponsor and service providers benefit from the management fees and other compensation outlined in the report.

Key Dates

Keywords

VIX Futures, Volatility, Exchange Traded Funds, Leveraged ETF, Inverse ETF, Financial Instruments, Derivatives, Net Asset Value, Short VIX Futures Index, Long VIX Futures Index