PowerShares looks to build on the success of SPLV with a VIX-hedged U.S. equities ETF.
Invesco PowerShares, the fund sponsor behind the $31 billion Nasdaq-100 ETF (NasdaqGM: QQQ), today launched an ETF that invests in U.S. stocks but hedges downside risk through the use of futures contracts linked to the CBOE Volatility Index, or VIX, the market’s leading measure of volatility.
The PowerShares S&P 500 Downside Hedged Portfolio is listed on Arca, the New York Stock Exchange’s electronic trading platform, with the ticker “PHDG” and has an annual expense ratio of 0.39 percent, the Wheaton, Ill.-based company said earlier this week in a press release.
Investments designed to tame the uncertainty and volatility that have characterized financial markets since the crash of 2008 have become all the rage in the ETF industry over the past few years. The poster child for the trend has to be the PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV), which has gathered more than $3 billion since it came to market in May 2011.
“Today, advisors and their clients are just as interested in protecting their assets as they are in generating positive returns,” Ben Fulton, Invesco PowerShares managing director of global ETFs, said in the press release about the allure of products such as the new PHDG.
The new ETF will “dynamically” allocate to VIX futures and cash depending on market volatility trends, PowerShares said.
“Unlike many alternative funds that seek to mitigate volatility by going long and short at the same time, PHDG will use a rules-based approach to dynamically shift its exposure among the S&P 500 Index, VIX futures and cash, depending on market volatility,” said Lorraine Wang, Invesco PowerShares senior vice president of new product development.
“The overall effect of the liquid alternative strategy is a portfolio with potentially below-average risk that may rise in down markets while potentially participating on the upside,” Wang said.
PHDG will achieve its investment objective by using a quantitative, rules-based strategy designed to provide returns that correspond to the performance of the S&P 500 Dynamic VEQTOR Index.