Daily ETF Watch: ProShares Debuts Alts Fund

New managed futures fund invests in commodities, currencies and fixed income.

On Thursday, ProShares rolled out a managed futures ETF that joins two other funds offered by First Trust and WisdomTree.

The ProShares Managed Futures Strategy ETF (FUTS) tracks the S&P Strategic Futures Index and comes with an expense ratio of 0.75 percent.

The underlying index takes a quantitative approach, using momentum to determine whether it should adopt a long or short position in each of its 24 components, which include 16 commodities, six developed-market currencies and two Treasury debt securities.

The biggest ETF operating in the managed futures space is the WisdomTree Managed Futures Strategy ETF (WDTI | C-73), which is actively managed and has nearly $180 million in assets. WDTI made its debut in early 2011. Despite its active management, the fund implements what the firm describes as a “quantitative, rules-based strategy” that is meant to reflect the performance of the Diversified Trends Indicator, which is very similar to FUTS’ benchmark in terms of its use of long and short positions, momentum weighting and components.

The only other competitor is the First Trust Morningstar Managed Futures Strategy Fund (FMF), which has a little more than $12 million in assets under management and launched in July 2013. Like WDTI, it is ostensibly actively managed and its portfolio is based on the Morningstar Diversified Futures Index. It can hold long, short or flat positions.

FMF was rolled out just a few months after iShares closed its own managed futures ETF, the iShares Diversified Alternatives Trust (ALT). Although the nearly four-year-old fund had nearly $60 million in assets under management, iShares said that it had failed to resonate with investors and shut it down.

WDTI and FMF annual expense ratios of 0.96 percent and 0.95 percent, respectively, about 20 basis points more than FUTS. The lower price, likely due to its closer adherence to its benchmark, could provide FUTS with an advantage over both funds.

Infrastructure Capital Launches MLP ETF
Newcomer Infrastructure Capital Advisors entered the ETF market on Thursday with the launch of the first actively managed MLP ETF. MLPs are a popular area for income-starved investors right now, and the press release announcing the fund said that it is targeting an annualized distribution yield of 8 percent.

The InfraCap MLP ETF (AMZA) joins a sizable field populated by 23 other MLP exchange-traded vehicles, 14 of which are ETNs. The largest is the Alerian MLP ETF (AMLP), which has $9.6 billion in assets under management, followed by the JPMorgan Alerian MLP ETN (AMJ), with $5.6 billion in assets. The Etracs Alerian MLP Infrastructure ETN (MLPI) has more than $2 billion in assets.

According to its prospectus, AMZA focuses on the midstream MLP space—basically the infrastructure portion of the MLP sector, where companies are mainly engaged in the handling and transportation of gas and petroleum products rather than exploration, production and distribution. AMLP has a similar focus on infrastructure MLPs, and the two funds have a great deal of overlap in their portfolios in terms of components.

The new ETF will typically limit the weights of individual MLPs to 15 percent of assets, with the number of holdings usually ranging from 25 to 50 MLPs.

AMZA is managed by Jay Hatfield, CEO of Infrastructure Capital, according to the prospectus. Like AMLP and most other MLP ETFs, the fund is structured as a C-corporation, which allows it to invest fully in MLPs; regular ETFs can only invest 25 percent of their assets in MLPs. However, the structure means that AMZA’s annual fees will likely be much larger than the total expense ratio of 1.05 percent stated in its prospectus after it has been trading for a time.

The fund can invest in derivatives and use derivatives-based strategies. It also can use leverage.

AMLP, for example, comes with an 8.56 percent total expense ratio; the C-corp structure means that the fund must include deferred income tax expenses in the expense ratio. As a result, it’s difficult to compare expenses between MLP ETFs and MLP ETNs, which do not have the same tax issues as the ETFs. MLPI and AMJ each have an expense ratio of 0.85 percent.

Infrastructure Capital is an investment advisor that focuses on infrastructure-related asset classes; ETF Issuer Solutions provided the exemptive relief necessary to launch the new fund, with Infrastructure Capital serving as AMZA’s subadvisor.