ProShares Plans Hedged High-Yield Debt ETF

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November 27, 2012
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Hedged junk bond ETFs appear to be a trend as a ProShares filing makes it the third such fund to go into the product pipeline in about a month.

ProShares, the world’s biggest purveyor of leveraged and inverse exchange-traded funds, filed regulatory paperwork to market a high-yield corporate debt fund that will be hedged by taking short positions in U.S. Treasurys, making it the latest addition to what appears to be a new trend in fixed-income ETFs.

Indeed, the proposed ProShares High Yield-Interest Rate Hedged ETF is the third junk bond ETF that will short Treasurys to offset exposure to go into registration this autumn. The filings amount to a sign fund sponsors want to address anxiety that already-paltry bond yields could morph into a disastrous rout if bond investors have to ride out a selloff as interest rates head higher going forward.

“By taking such short positions, the Index is designed to mitigate any losses the high yield bonds would otherwise experience in a generally rising Treasury interest rate environment (and conversely, will limit any gains the high yield bonds would experience in a falling Treasury interest rate environment),” Bethesda, Md.-based ProShares said in the registration statement that it filed Nov. 26.

As IndexUniverse ETF Analyst Gene Koyfman wrote in a recent blog, fund sponsors are preparing for higher interest rates and bond yields—pinned to super-low levels since the market crash of 2008. In that vein, a recent selloff in the high-yield debt market was seen by some as a sign that concern about rising rates had moved to junk bonds, which have been a huge hit this year among yield-hungry investors.

The two other registrations for high-yield debt funds that plan to short Treasurys were filed by Wheaton, Ill.-based FirstTrust and New York-based Market Vectors, and Koyfman characterized the planned ETFs as vehicles with exposure to credit-driving returns that mitigate interest rate risk at the same time.

The company didn’t say what the ProShares High Yield-Interest Rate Hedged ETF would cost investors each year, nor did it say what its ticker symbol would be.

ProShares is the No. 6 U.S. ETF sponsor, with just over $22 billion in assets, according to IndexUniverse’s daily “ETF League Table.”

Total U.S.-listed ETF assets are meanwhile at around $1.292 trillion, according to data compiled by IndexUniverse.

 

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