ProShares Launches 2nd Rate-Hedged ETF

November 11, 2013

ProShares is again looking to take interest-rate-hike fears off the table with its latest offering.

ProShares has launched the ProShares Investment Grade–Interest Rate Hedged fund (BATS: IGHG), which the firm is touting as the first investment grade bond ETF in the U.S. that provides a built-in hedge against rising interest rates.

IGHG targets a duration—a measure of a bond’s price sensitivity to changes in interest rates sensitivity—of zero by shorting Treasury futures. The ETF tracks the Citi Corporate Investment Grade (Treasury Rate-Hedged) Index, which consists of a long position in investment-grade corporate bonds and a duration-matched short position in U.S. Treasury bonds.

IGHG now complements the $27.3 million ProShares High Yield - Interest Rate Hedged fund (HYHG), which launched in May and has gained 1.30 percent for the past three months, according to data compiled by IndexUniverse.

The new investment-grade ETF has an annual expense ratio of 0.30 percent, or $30 for each $10,000, while the first high-yield ETF is priced with a 0.50 percent expense ratio.

The launch comes at a time of market uncertainty with the Federal Reserve mulling a pullback from its easy-money program that has driven broader markets to new highs. In a previous interview with IndexUniverse, Steve Sachs, head of capital markets for ProShares, said that there’s a real education gap stemming from advisors and investors about what happens to their bond portfolio when interest rates rise.

“We’re not sure—given the amount of money that’s flowed into fixed-income securities, and given just the demographics of this country—that people truly understand what a bear-bond market is going to do,” he said.

“Think about it: Interest rates rise in good economic times, so we’re most likely going to be facing a scenario where equity prices are rising, unemployment is falling and GDP is growing. Everybody thinks, ‘This is great. We’re in a great economic environment. But with all that money I’ve poured into bonds, this portfolio is declining in value.’”

 

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