ProShares, Arnott Team On Long/Short ETF

December 09, 2010

ProShares uses RAFI index from Arnott's firm for new long/short ETF.

ProShares, the world’s biggest purveyor of inverse and leveraged funds, is launching a long/short U.S. equities ETF today based on an index provided by Rob Arnott's fundamental indexing firm Research Affiliates.

The ProShares RAFI Long/Short ETF (NYSEArca: RALS) will hold a broad swath of U.S.-based companies, with equal dollar investments in both long and short positions that are rebalanced monthly. The fund will compete with funds such as the Mars Hill Global Relative Value ETF (NYSEArca: GRV), an active long-short fund from AdvisorShares.

The RAFI index takes long positions in securities with larger RAFI weights relative to their capitalization weights, while short positions are taken in securities with smaller RAFI weights relative to their capitalization weights. The index is reconstituted annually, at which time new long and short positions are selected and weighted.

RALS will cost investors 0.95 percent, according to the ProShares website. GRV from AdvisorShares costs investors 1.35 percent a year.

"Lifting the long-only constraint extends the potential benefits of the RAFI approach," Rob Arnott, founder of Newport Beach, Calif.-based Research Affiliates, said in a press release.

Arnott's firm is one of the pioneers of so-called fundamental indexing that screen companies for inclusion in an index based on their actual performance rather than their market capitalization. The measures RAFI looks at include sales, dividends, cash flow and book value.

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