ProShares Plans New Type Of Volatility ETFs

December 20, 2011

ProShares plans to target specific volatility level in new lineup of ETFs.

ProShares, the world’s largest purveyor of leveraged and inverse exchange-traded funds, filed paperwork with the Securities and Exchange Commission to bring to market seven ETFs that will be linked to versions of popular indexes and calibrated to deliver volatility levels of 15 percent.

The seven leveraged ETFs are part of a growing number of funds that aim to help investors profit from volatility while also providing safeguards to protect them from the ongoing uncertainty that has roiled financial markets since the meltdown of 2008-2009.

Some of the existing products, such as the $780 million iPath S&P 500 VIX Short-Term Futures ETN (NYSEArca: VXX) are like an insurance policy for volatile days. Others, such as the PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV), seek to smoothen the ride for investors by selecting securities that have a history of being less volatile. The funds from ProShares look like an industry first.

The seven ProShares funds will de-leverage when the realized volatility of their respective indexes is greater than 15 percent by increasing exposure to three-month U.S. Treasury bills, and conversely they will leverage up by decreasing exposure to Treasury bills when the realized volatility of the underlying indexes is less than 15 percent.

The ProShares filing didn’t list expense ratios or ticker symbols, though the firm’s leveraged and inverse ETFs typically have 0.95 percent expense ratios. The seven funds are:

  • ProShares Nasdaq 100 – 15 % Volatility Target
  • ProShares Dow 30 – 15% Volatility Target
  • ProShares Russell 2000 – 15% Volatility Target
  • ProShares Russell 1000 – 15% Volatility Target
  • ProShares MSCI EAFE – 15% Volatility Target
  • ProShares MSCI Emerging Markets – 15% Volatility Target
  • ProShares S&P MidCap400 – 15% Volatility Target


Because each of the funds is leveraged and because each will be rebalanced daily, their returns are likely to be substantially different from their indexes. Such funds with outsized potential for both returns and losses are thus most appropriate for investors who trade their accounts regularly.

The company said in the filing that investors could incur higher brokerage costs and possible taxable capital gains because daily rebalancing and active market trading of the funds will all serve to increase portfolio transactions.


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