ProShares Plans 4 Inflation-Linked ETFs

September 27, 2011

ProShares enters the world of inflation-related strategies with plans for four ETFs.

ProShares, the world’s biggest purveyor of inverse and leveraged ETFs, filed paperwork with the Securities and Exchange Commission to market four exchange-traded funds that give investors tools to manage various inflationary scenarios over 10- and 30-year periods.

The ETFs, which will make use of derivatives such as swaps to implement their respective investment strategies, are:

  • 30yr Rising Inflation ETF
  • 10yr Rising Inflation ETF
  • 30yr Falling Inflation ETF
  • 10yr Falling Inflation ETF


Both the 30-year and 10-year ETFs will take long positions in U.S. Treasury inflation-protected securities (TIPS) and short positions in regular U.S. Treasury securities.

The strategies are designed to reflect positions in the 30-year and 10-year “breakeven” rates of inflation, or the levels of inflation required for a TIPS security to approximate the performance of a Treasury security of equivalent duration over either the next 10 or 30 years, respectively. The breakeven rates of inflation represent a measure of the market’s expectations for inflation over the relevant period, according to the filing.

Inflation, or the lack of it, looms largely in the current economic environment. While it’s not hard to see how all the U.S. deficit spending could spark inflation, the worst economic downturn since the 1930s seems to be staving off the day when inflation actually starts building. What’s clear is that investors are receptive to inflation-related ETFs. The iShares Barclays TIPS Fund (NYSEArca: TIP), for example, is the single biggest U.S. fixed-income ETF, with more than $20 billion in assets as of Sept. 26, according to data compiled by IndexUniverse.

Buyer Beware

In bold lettering, the company warned in the filing that the funds are designed to seek leveraged returns relative to their indexes on a daily basis, and that they don’t seek to achieve stated investment objectives for longer than one-day periods.

Returns of funds that rebalance daily can deviate significantly over time from returns of their underlying indexes, and ProShares stressed that therefore the funds may not be appropriate for all investors. It said such funds should be used only by knowledgeable investors who understand how daily rebalancing works and who actively monitor their investments.

ProShares is the fifth-largest U.S. ETF sponsor, and had more than $26 billion in assets as of Sept. 26. Its double-bearish exposure ProShares UltraShort 20+ Year Treasury ETF (NYSEArca: TBT) is the single biggest leveraged and inverse exchange-traded fund in the world.


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