ProShares Debuts Breakeven Inflation ETFs

January 12, 2012

ProShares unveils a first-to-market duo of ETFs designed around inflation, or a lack of it.

ProShares, the largest purveyor of leveraged and inverse ETFs, today rolled out a pair of funds that allow investors to express an outlook on inflation by pairing exposure of 30-year Treasury bonds with TIPs, a first for the U.S. ETF market. One ETF is long 30-year T-bonds and short 30-year TIPs, and the other achieves the opposite.

The ProShares 30 Year TIPS/TSY Spread (NYSEArca: RINF) tracks the Dow Jones Credit Suisse 30-Year Inflation Breakeven Index, which is designed to measure the return of a long position in 30-Year TIPS and a short position in Treasury bonds.

Its inverse counterpart, the ProShares Short 30 Year TIPS/TSY Spread (NYSEArca: FINF) provides the daily inverse performance of that same index, which means it’s short the long bond and long 30-year TIPs.

The strategy was only available to investors through an ETN wrapper until now. Deutsche Bank and Invesco PowerShares launched back in December the market's first pair of inflation- or deflation-linked ETNs, "INFL" and "DEFL," each costing 0.75 percent in fees.

RINF and FINF each comes with a 0.75 percent annual expense ratio, ProShares said on its website.

The launch comes just a month after State Street Global Advisors filed paperwork with U.S. regulators to market a similar ETF that would tap into breakeven inflation through a long TIPS/short bond portfolio.

Breakeven inflation is a widely followed measure of the market’s expectations for inflation over a certain time frame. It’s the level of inflation required for a TIPS security to approximate the performance of a Treasury bond of equivalent duration over that same period.

The ProShares funds underscore the market’s growing appetite for inflation-linked strategies as investors look for ways to manage the prospects for inflation, or the lack of it. Whether inflation comes sooner or later, many investors are expecting it, given all hefty government deficit spending and easy-money monetary policies in much of the developed world since markets crashed in 2008.

“Many investors are focused on inflation and closely follow breakeven inflation, a common yardstick for inflation expectations,” ProShares’ chairman and CEO Michael Sapir said in a press release.

Funds like the $22 billion iShares Barclays TIPS Bond Fund (NYSEArca: TIP)—currently the world’s largest fixed-income ETF—or SSgA’s $613 million SPDR Barclays Capital TIPS ETF (NYSEArca: IPE) have resonated with investors looking for ways to protect capital in the face of a possible increase in inflation.

ProShares also has four other inflation-linked ETFs in the works that are designed to manage various inflationary scenarios over 10- and 30-year periods.


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