Daily ETF Watch: Vident Plans Bond Fund

July 16, 2014

Vident, the Georgia-based exchange-traded fund firm known for “smart beta” products that screen securities for variables like solid corporate governance, put into registration an intermediate bond ETF called the Vident Core U.S. Bond Fund that will also feature a risk-focused index methodology.

While the “smart beta” trend is big in the equities market, the proposed Vident fund represents one of the few bond market examples of next-generation indexing.

The Vident Core U.S. Bond Fund will have exposure to fixed-income sectors, including U.S. Treasurys, Treasury inflation-protected securities, mortgage-backed securities, investment-grade corporate bonds and high-yield corporate bonds, according to the regulatory filing.

The ETF’s index, like the indexes on its two existing strategies—the Vident International Equity Fund (VIDI | D-49) and the Vident Core U.S. Equity Fund (VUSE)—will seek to “identify corporate issuers with a demonstrated commitment to high standards of corporate governance, financial reporting, managerial stewardship, and creditworthiness,” the prospectus said.

The index will also weight the allocation to each sector based on risk of loss in extreme events, such as expected tail loss, and macroeconomic factors like fiscal policy and demographic factors, according to the filing.

The filing comes at a time when the Federal Reserve has signaled that rates will rise sooner rather than later if the economy continues on its trajectory. Bond investors are thus again fretting about the effects that rising rates could have on their fixed-income holdings.

Vident didn’t disclose the planned fees for the offering in the initial regulatory filing.

Vident’s first two offerings, VIDI and VUSE, have been well received. VIDI now has $744 million in assets under management, while VUSE has $174 million. Both ETFs were bespoken, which means they were in part prepared and launched for a targeted clientele that immediately scooped up millions of dollars of VIDI and VUSE shares.

ProShares Plans Inverse China Funds

ProShares has filed regulatory paperwork to change indexes on a trio of China-focused funds that will follow FTSE transitioning of the FTSE China 25 Index into the broader FTSE China 50 Index. The two of the funds serve up inverse exposure to Chinese equities, while the third is a double-exposure ETF.

The FTSE 25 is the very same index on which the $5 billion iShares FTSE 25 China ETF (FXI | B-49) is based. FTSE's change in the index comes at a time when the world’s second-largest economy is slowing from its double-digit growth of past years. Officials there are currently forecasting a 7.5 percent gross domestic product growth for 2014 versus 7.7 percent for the last two years and 9.3 percent in 2011.

The changing face of the FTSE China 25 likely means investors will capture the rebound in Chinese stocks more completely.

Apart from FXI, FTSE's index evolution will affect three proposed ProShares ETFs, including:

  • ProShares Short FTSE China 50 (YXI), a 1x inverse offering
  • ProShares UltraShort FTSE China 50 (FXP), a 2x inverse offering
  • ProShares Ultra FTSE China 50 (XPP), a 2x long offering

The first two will have single and double inverse exposure to 50 of the largest and most liquid Chinese stocks listed on the Hong Kong Stock Exchange, according to the filing. The third will have double long exposure.

ProShares said in the prospectus that all of the newly proposed offerings are investment horizons appropriate for a single day only, not for longer periods.

 

 

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