The level of the VIX has historically reverted to a long-term mean
(i.e., average) level and any increase or decrease in the level of
the VIX
will likely continue to be constrained.
In the past, the level of the VIX has typically reverted over the
longer term to a historical mean, and its absolute level has
been constrained
within a band. As such, the potential upside of long or short
exposure to VIX futures contracts may be limited as the performance
of VIX
reverts to its long-term average. In addition, any gains may be
subject to significant and unexpected reversals as the VIX reverts
to its long-term
mean.
When economic uncertainty and other market risks increase, or are
expected to increase, and there is an associated increase in
expected volatility,
the price of VIX futures contracts will likely also increase.
Similarly, when economic uncertainty recedes, or is expected to
recede, and
there is an associated decrease in expected volatility, the price
of VIX futures contracts will likely also decrease. Historically,
each of these patterns
have tended to reverse. These reversals may be significant and
unexpected and have a negative impact on the performance of the
VIX Futures
Fund. During February and March 2020, market volatility elevated to
historic highs as measured by the VIX. In 2020, the VIX
started the year
at a level of 12.47 on January 2, 2020, and it spiked to 82.69 on
March 16, 2020. However, there is no certainty that such levels
may persist
even if the scope and duration of the disruption caused by the
COVID-19 pandemic is prolonged or if other economic or
political developments
contribute to volatility and investor uncertainty. Such performance
is not typical and may not continue for a sustained period
of
time.
The value of the Shares of the VIX Futures Fund relates directly to
the value of, and realized gain or loss from, the Financial
Instruments
and other assets held by the Fund. Fluctuations in the price of
these Financial Instruments or assets could materially adversely
affect an
investment in Shares of the VIX Futures Fund.
A number of factors may affect the price and/or liquidity of VIX
futures contracts and other Financial Instruments, if any, owned by
the VIX
Futures Fund, including, but not limited to:
•Prevailing
market prices and forward volatility levels of the U.S. stock
markets, the S&P 500, the equity securities included in
the
S&P 500 and prevailing market prices of options on the S&P
500, the VIX, options on the VIX, the relevant VIX futures
contracts,
or any other financial instruments related to the S&P 500 and
the VIX or VIX futures contracts;
•Interest
rates and investors’ expectations concerning interest
rates;
•Inflation
rates and investors’ expectations concerning inflation
rates;
•Inflation
rates may change frequently and drastically as a result of various
factors, including unexpected shifts in the domestic
or
global economy, and a Fund’s investments may not keep pace with
inflation, which may result in losses to investors;
•Economic,
financial, political, regulatory, geographical, judicial and other
events that affect the level of the Mid-Term VIX
Futures Index or the market price or forward volatility of the U.S.
stock markets, the equity securities included in the S&P
500, the
S&P 500, the VIX or the relevant futures or option contracts on
the VIX;
•Supply
and demand as well as hedging activities in the listed and OTC
equity derivatives markets;
•The
level of margin requirements;
•The
position and accountability limits imposed by futures exchanges and
any position or risk limits imposed by Futures Commission
Merchants
(“FCMs”) or swap counterparties;
•Disruptions
in trading of the S&P 500, futures contracts on the S&P 500
or options on the S&P 500;
•The
level of contango or backwardation in the VIX futures contract
market;
•Global
or regional political, economic, or financial events and situations
(including political disruptions, societal breakdown,
insurrection,
terrorism, pandemics, sabotage and/or war) and investor
expectations concerning such events;