Tidal files a Defiance 2x ETF on Amplify's tanker-freight fund

Amplify's Breakwave Tanker Shipping ETF DBWET has returned 3,453% year to date through Thursday. Reuters reported on September 11 that the cost of shipping oil in the largest tankers had hit record highs after the biggest wave of attacks on shipping since the U.S.-Iran war began in late February. After Thursday's close, Tidal Trust V filed a post-effective amendment to wrap a daily double around the fund's share price.

What DBWET holds

DBWET closed Thursday at $684.29, down 7.5%. The Defiance filing, taking the description from DBWET's February 17 prospectus, says the Amplify fund seeks exposure to the daily change in tanker freight futures by tracking a portfolio that mainly holds the nearest calendar quarter of futures on specified indexes that measure the cost of shipping crude oil.

As of Wednesday, that book was a large government money-market and cash stub plus near-dated futures on the cost of moving crude from the Middle East Gulf to China on very large crude carriers, and a smaller sleeve of West Africa-to-Continent Suezmax futures, with net assets of $287.9 million. The expense ratio is 3.50%.

DBWET is up 52.5% over the past month and sits 21.5% below a 52-week high of $872.14 set on Friday, September 18. On Tuesday it fell 18.2%, a session covered in Tanker fund falls 22% from Friday's 52-week high.

John Kartsonas of Breakwave Advisors, the freight adviser to the Amplify fund, said in August that if the Strait of Hormuz normalized, "you would expect freight rates to come down, and that would affect freight futures as well."

Defiance's proposed 2x on DBWET

The proposed series would seek daily results, before fees and expenses, of two times (200%) the daily percentage change in DBWET's share price. The fund "does not seek to achieve its stated investment objective for a period other than a single trading day."

Tidal Investments LLC is the adviser. The strategy is the wrapper Defiance already uses on single names and on other ETFs: an actively managed book of swap agreements and listed options tied to the underlying's share price. The filing says the fund "invests in swap contracts and options that are based on the share price of DBWET," and that this "subjects the Fund to certain of the same risks as if it owned shares of DBWET, even though it does not." It may put up to 25% of assets in a wholly owned Cayman Islands subsidiary, which can hold commodity-linked swaps without the same limits. Because of those commodity interests, the filing says the fund and the subsidiary would each be regulated as commodity pools, with Tidal Investments as commodity pool operator.

Defiance already lists daily 2x products on other ETFs, including the Defiance Daily Target 2X Long Copper Miners ETF CCOPZ, which seeks twice the daily move in Global X's copper-miners fund.

The three sessions through Thursday show what those daily resets would have done. DBWET fell 18.2% Tuesday, rose 8.4% Wednesday and fell 7.5% Thursday, a three-day loss of 18.0%. A fund that doubled each move and reset overnight would have fallen 36.4%, then risen 16.8%, then fallen 15.0%, a 36.9% loss. That is not 200% of DBWET's move over the same stretch. The filing says so.

Post-Effective Amendment No. 68 to Tidal Trust V's registration statement adds one new series. It leaves the ticker, the listing exchange, and the fee table blank, and it is stamped subject to completion. Tidal checked the Rule 485(a)(2) box, which would make a new series effective 75 days after filing unless the SEC stops the clock or the issuer amends again. The prospectus warns that the shares cannot be sold until the registration statement is effective. The same trust has been adding Defiance series this month. In Tidal Trust V makes two Defiance long/short ETFs immediately effective, it used a different rule to make two other Defiance products effective on filing. Thursday's paper is the slower clock. If you hold the Amplify fund, the amendment does not change it.

The filing can still be amended, delayed, or left on the shelf.