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.
The in-kind stock transaction used in the Duracell deal lies of at the heart of every ETF, and has the same benefit: tax efficiency.
Stock investors are used to splits, but why all the reverse splits in ETFs?
Falling gas prices and a strong buck may boost retail stocks, but the favorite ETF may not be the best play.
An alluring new bond ETF focused on China’s mainland credit market comes with a few caveats.