Elkhorn Investments has filed for an ETF-of-ETFs that would invest mainly in other ETFs falling into three buckets. The Elkhorn Disciplined Hedged Equity ETF will track the Asymmetric Capital Management Risk Managed US Equity Index and treat volatility as an asset class within its portfolio.
The three portfolios within the fund will cover U.S. equities, volatility exposures and U.S. Treasuries, respectively, with the goal of hedging against downside risk when the U.S. equity market is declining.
The equity portion will represent roughly 70% of the fund’s assets and consist of four other ETFs. According to the prospectus, those funds and their weightings within the equity bucket include the following:
- iShares Core S&P 500 ETF (IVV), 30%
- iShares Russell 1000 ETF (IWB), 25%
- iShares Core S&P Mid-Cap ETF (IJH), 10%
- iShares Russell 2000 ETF (IWM), 5%
The volatility portfolio can represent as little as 10% and as much as 18% of the fund’s assets, with the weighting based on the VIX futures market. When the prices of the VIX futures is high, indicating that 30-day volatility is expected to be high, the fund will have a lower weighting in the volatility portfolio. When 30-day volatility is expected to be low and the price of VIX futures is low, the fund will have a higher weighting to volatility. That portion of the fund includes three ETFs:
- iPath S&P VIX Short Term Futures ETN (VXX)
- ProShares Short VIX Short Term Futures ETF (SVXY)
- ProShares VIX Mid-Term Futures ETF (VIXM)
The prospectus notes that more weight is generally allocated to VXX and VIXM when volatility is increasing, and more weight to SVXY when it’s falling.
Finally, the Treasuries portfolio includes only one ETF, the iShares 20+ Year Treasury Bond ETF (TLT). The fluctuations in the volatility portfolio’s weighting will be compensated for by an allocation to the iShares Short Treasury Bond ETF (SHV).
The fund’s index rebalances only when the portfolio deviates from its target weightings by 2-6%, the prospectus said. The document did not include a ticker, listing exchange or expense ratio.
Contact Heather Bell at [email protected].