Daily ETF Watch: Highland Launches Funds

Daily ETF Watch: Highland Launches Funds

A Dallas firm with a successful senior loan ETF rolls out three hedge-fund-copying funds.

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Reviewed by: Heather Bell
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Edited by: Heather Bell

Highland Capital Management, the firm behind the $320 million Highland/iBoxx Senior Loan ETF (SNLN | C), is launching three more funds today, though their focus could not be more different than that of SNLN.

 

The firm’s newest products will seek to replicate the performance of different hedge fund strategies. The funds include the following:

  • Highland HFR Global ETF (HHFR)
  • Highland HFR Event-Driven ETF (DRVN)
  • Highland HFR Equity Hedge ETF (HHDG)

 

Each tracks an index from Hedge Fund Research Inc., the Chicago-based research and data firm.

 

While HHFR will invest in securities that are targeted by event-driven, relative-value, equity-hedge and macro hedge fund strategies, DRVN and HEDG will focus on individual strategies. Equity-hedge hedge funds use a long/short approach to investing, while event-driven hedge funds seek to exploit the effects of various corporate transactions, such as mergers, acquisitions and security issuances, among others.

 

Not only will the funds invest in equity and debt securities, they can also take short positions. Each comes with an expense ratio of 0.85 percent, or $85 per $10,000 investment. All three trade on the NYSE Arca.

 

Highland officials told ETF.com that it is slated to launch another fund later this month—one that’s more similar to SNLN in terms of its coverage. The Highland S&P AAA CLO ETF, which will trade under the symbol “CLO,” will cover AAA-rated collateralized loan obligations and list on the Nasdaq exchange.

 

J.P. Morgan Plans Currency-Hedged ETF

J.P. Morgan, which just entered the ETF space in the past year with the launches of two smart-beta funds, is looking to break into another growing trend: currency hedging. The JPMorgan Diversified Return Hedged International Equity ETF will track a FTSE index that targets large- and midcap stocks in developed markets outside of North America.

 

The underlying index is derived from the cap-weighted FTSE Developed ex North America Index, and the ETF’s modified benchmark seeks to emphasize the following factors: relative valuation, price momentum, low volatility and specific market capitalization. According to its prospectus, the fund will use foreign currency forward contracts to create the currency hedge.

 

J.P. Morgan already has a fund called the JPMorgan Diversified Return International Ex-North America Equity ETF in registration, which is basically the same fund but without the currency hedge. It looks like—as is iShares’ practice—J.P. Morgan could be rolling out hedged and unhedged versions of its funds. If that’s the case, the hedged version could simply purchase the unhedged version and apply the currency hedge. Given that not everyone is sold on the idea of currency hedging, that seems like a wise choice.

 

However, there don’t seem to be any filings for hedged versions of J.P. Morgan’s two existing ETFs—the JPMorgan Diversified Return Emerging Markets Equity ETF (JPEM) and the JPMorgan Diversified Return Global Equity ETF (JPGE | C-66).

 

Currency hedging has exploded on the ETF scene, mainly due to the success of the WisdomTree Japan Hedged Equity ETF (DXJ | B-68). That ETF has accumulated nearly $18 billion in assets under management (AUM), and was recently surpassed by its sister fund, the WisdomTree Europe Hedged Equity ETF (HEDJ | B-49), which currently has slightly more than $20 billion in AUM.

 

 

Heather Bell is a former managing editor of etf.com. She has also held editorial positions at Dow Jones Indexes and Lehman Brothers. Bell is a graduate of Dartmouth college and resides in the Denver area with her two dogs.