Daily ETF Watch: A New Multi-Alts Fund

October 10, 2014

The ETF market gets its first comprehensive alternative investments strategy.

ProShares, doing justice to its aim to be known as the "Alternative ETF company," this week launched a fund-of-funds ETF that combines seven pre-existing ProShares ETFs into what it calls the exchange-traded market's first one-stop-shop take on alternative investment in a rules-based package.

The Bethesda, Maryland-based company rolled out the ProShares Morningstar Alternatives Solution ETF (ALTS) on Thursday and, as the name suggests, the strategy is based on an index developed by Morningstar, the Chicago-based financial research firm. The new fund comes with a net annual expense ratio of 95 basis points, or $95 for each $10,000 invested.

Just what exactly constitutes an alternative investment is a question that hangs unanswered over the investment industry. The new ProShares fund is likely to help answer that question to the extent that investors can now see what various so-called alternative strategies look like together in one exchange-traded package.

ProShares Chief Executive Officer Michael Sapir said in a telephone interview on Thursday that the new fund, ALTS, gives investors a relatively easy-to-manage tool to cleanly and systematically diversify their portfolios with a multi-asset-class alternatives allocation. He said managing and maintaining a permanent allocation to an alternatives sleeve was now a lot easier with ALTS.

The new fund is made up of the following existing ProShares ETFs in the following weights:

Asset Class Index Constituent Weight
Hedge Funds ProShares Hedge Replication ETF (HDG | F-58) 22.23%
Long/Short Equity ProShares RAFI Long/Short ETF (RALS | D-82) 24.03%
Merger Arbitrage ProShares Merger ETF (MRGR | F-59) 11.00%
Managed Futures ProShares Managed Futures ETF (FUTS) 5.91%
Breakeven Inflation ProShares 30 Year TIPS/TSY Spread ETF (RINF) 2.55%
Global Infrastructure ProShares DJ Brookfield Global Infrastructure ETF (TOLZ | D-40) 16.28%
Listed Private Equity ProShares Global Listed Private Equity ETF (PEX | F-49) 18%

Index Details

On its website, ProShares included details on the index as follows:

  • Each ETF is included in the portfolio based on an "optimization" assessment of how each ETF's improves the risk/return characteristics of a portfolio composed of 60-75 percent equities and 25-40 percent bonds.
  • The maximum weight any one ETF gets in the fund is 30 percent.
  • The base weights are determined annually as part of the above optimization process.
  • In addition to the optimization process, Morningstar also applies a tactical momentum signal designed to increase or decrease allocation to each ETF in ALTS based on the price momentum of each ETF.

The index is constructed and maintained by Morningstar and its research unit, Ibbotson Associates, the company said.

 

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