10-Q: VS Trust Reports Mixed Performance for SVIX and UVIX in Q1 2024 Amidst Volatile VIX Futures Market

VS Trust's Q1 2024 results show contrasting performance for its -1x Short VIX Futures ETF (SVIX) and 2x Long VIX Futures ETF (UVIX) amid active trading in VIX futures and options.

Summary

• VS Trust, comprising the -1x Short VIX Futures ETF (SVIX) and the 2x Long VIX Futures ETF (UVIX), released its financial results for the quarter ended March 31, 2024.
• SVIX reported a net increase in net assets resulting from operations of $15.78 million, while UVIX reported a net decrease of $30.06 million.
• SVIX's net asset value (NAV) per share increased from $37.78 to $42.51, and UVIX's NAV per share decreased from $13.73 to $8.68.
• The report details the funds' investments in short-term instruments, VIX futures contracts, and options, along with associated risks and market sensitivities.
• Both funds actively manage their portfolios, rebalancing daily to maintain exposure consistent with their investment objectives.
• SVIX had net assets of $91.39 million and UVIX had net assets of $77.97 million as of March 31, 2024.
• The funds use leverage and are riskier than similarly benchmarked exchange-traded funds that do not use leverage.

Sentiment

Score: 5

Explanation: The sentiment is neutral due to the mixed performance of the two funds. SVIX performed positively, while UVIX performed negatively, balancing the overall outlook.

Positives

• SVIX generated a net increase in net assets resulting from operations.
• SVIX's NAV per share increased significantly during the quarter.
• Both funds maintain disclosure controls and procedures to ensure accurate financial reporting.

Negatives

• UVIX experienced a net decrease in net assets resulting from operations.
• UVIX's NAV per share decreased substantially during the quarter.
• The funds are subject to risks associated with leverage, correlation, compounding, and counterparty credit risk.

Risks

• The funds are exposed to risks associated with leverage, which can increase the risk of total loss of investment.
• Correlation and compounding risks can cause the funds' performance to differ from their stated objectives.
• Counterparty risk exists due to the use of derivatives, including potential losses from counterparty defaults.
• Liquidity risk can impact the ability to liquidate financial instruments at desired prices.
• Contango and backwardation in futures markets can affect performance during rolling of contracts.
• Regulatory changes and market disruptions can impact the funds' operations and performance.
• Natural disasters and epidemics can disrupt economies and markets, affecting fund investments.

Future Outlook

The discussion and analysis in the report contain forward-looking statements subject to uncertainties, risks, and changes in circumstances that are difficult to predict and outside of the funds' control.

Management Comments

• The Sponsor determines the type, quantity, and mix of investment positions, including derivative positions, which the Sponsor believes in combination, should produce returns consistent with a Funds objective.
• The Sponsor regularly reviews the performance of its counterparties for, among other things, creditworthiness and execution quality.

Industry Context

These funds operate in the niche market of volatility-linked exchange-traded products, which are known for their complexity and potential for high returns and high losses. Competitors include other VIX futures-based ETFs and ETNs offered by firms like ProShares and VelocityShares. The performance of these funds is highly dependent on the dynamics of the VIX futures market, which can be influenced by broader market sentiment, economic events, and investor expectations.

Comparison to Industry Standards

• Comparing SVIX and UVIX to similar products like ProShares Short VIX Short-Term Futures ETF (SVXY) and ProShares Ultra VIX Short-Term Futures ETF (UVXY) reveals differences in expense ratios and tracking methodologies.
• SVXY, which also shorts VIX futures, has a similar expense ratio but may employ a different rolling strategy, leading to variations in performance.
• UVXY, a leveraged long VIX futures ETF, faces similar challenges with contango and decay, impacting its long-term returns compared to UVIX.
• The performance of these funds is often compared to the VIX index itself, but it's crucial to remember that these ETFs track VIX futures, not the spot VIX index, resulting in significant tracking differences.

Stakeholder Impact

• Shareholders of SVIX experienced positive returns, while shareholders of UVIX experienced significant losses.
• The funds' performance impacts authorized participants who create and redeem creation units.
• The sponsor and service providers continue to receive fees for managing and administering the funds.

Key Dates

Keywords

VIX futures, volatility, SVIX, UVIX, ETF, derivatives, futures contracts, options, financial statements, net asset value, short VIX, long VIX