ProShares Adds 10-Year ‘Inflation’ ETFs

February 09, 2012

ProShares adds to its lineup of ‘breakeven inflation’ with a pair of funds focused on 10-year maturities.

ProShares, the world’s biggest purveyor of leveraged and inverse ETFs, today rolled out a pair of triple-exposure funds that allow investors to express an outlook on inflation by pairing exposure of 10-year Treasury notes with TIPS. One ETF is long 10-year TIPS and short 10-year notes, the other the opposite.

ProShares rolled out a pair of similar single-exposure ETFs focused on 30-year maturities last month, which were the first version of such an investment strategy in an ETF wrapper. In December, Deutsche Bank and Invesco PowerShares launched the market’s first pair of inflation- or deflation-linked ETNs, “INFL” and “DEFL.

The two new ProShares products are:

  • ProShares UltraPro 10 Year TIPS/TSY Spread ETF (NYSEArca: UINF). It tracks the Dow Jones Credit Suisse 10-Year Inflation Breakeven Index, which is considered to be a measure of the market’s expectations for inflation over the next 10 years. The fund, a bet on rising inflationary pressure, takes a long position in 10-year TIPS and a short position in 10-year Treasury notes.
  • ProShares UltraPro Short 10 Year TIPS/TSY Spread ETF (NYSEArca: SINF). The ETF provides the daily inverse performance of that same index. That means it’s short 10-year TIPS and long 10-year Treasury notes. It amounts to a bet that inflationary pressures are likely to remain relatively muted.

 

The ProShares products track breakeven inflation, 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 new funds underscore the market’s appetite for inflation-linked strategies, as investors look for ways to manage the prospects for inflation, or 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.

Both ProShares funds come with a total expense ratio of 0.75 percent, which includes a fee waiver of 0.23 percent through Jan. 12, 2013. The competing PowerShares DB ETNs also have annual expense ratios of 0.75 percent.

The new funds are riskier than funds that don’t use leverage. In addition, they are rebalanced daily. Both the triple-exposure and the daily rebalancing mean the returns of the funds can vary dramatically, particularly over longer time periods.

Separately, State Street Global Advisors also filed paperwork with U.S. regulators in December to market an ETF that would tap into breakeven inflation through a long TIPS/short bond portfolio.

 

 

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