ProShares, a premier provider of alternative exchange traded funds,
today announced that Investment Grade—Interest Rate Hedged ETF (IGHG)
has surpassed $100 million in assets. Launched in November 2013, IGHG
delivers a diversified portfolio of investment grade bonds with a
built-in interest rate hedge.
“We believe that the strong flows into our interest rate hedged ETFs
demonstrate investor interest in going beyond short-term bond funds to
protect against rising rates,” said Michael Sapir, Chairman and CEO of
ProShare Advisors LLC. “IGHG and our interest rate hedged high yield
ETF, HYHG, have together attracted more than $275 million in the little
more than a year since we launched HYHG.”
While the short duration of short-term bond funds may provide some
protection against rising rates, IGHG and HYHG go beyond short-term bond
funds by targeting a duration of zero. Duration is a measure of price
sensitivity to interest rate changes—the lower the duration, the less
sensitive an investment should be. IGHG and HYHG target zero duration by
combining a portfolio of corporate bonds with short Treasury futures
positions that provide a built-in hedge.
IGHG follows the Citi Corporate Investment Grade (Treasury Rate-Hedged)
Index, a U.S. dollar-denominated index that measures the performance of
investment grade corporate debt. The index consists of a long position
in investment grade corporate bonds and a duration-matched short
position in U.S. Treasury bonds. The investment grade portion of the
index offers exposure to the more liquid, cash-pay bonds. Each issuer is
limited to 3% of the market value of the investment grade corporate
position of the index.
The short position in U.S. Treasury securities attempts to hedge the
duration and yield curve exposure of the long position in the investment
grade bonds in the Index. This strategy seeks to mitigate the negative
impact of rising U.S. Treasury interest rates on the performance of
investment grade bonds. Conversely, the strategy may limit the positive
impact of falling interest rates.
In the ETF, the short position in U.S. Treasury securities is
constructed using three U.S. Treasury securities corresponding to the
10-Year U.S. Treasury Note Futures, U.S. Treasury Bond Futures and Ultra
U.S. Treasury Bond Futures contracts in an attempt to approximate the
maturity distribution of the overall index.
About ProShares
ProShares offers the nation’s largest lineup of alternative ETFs. We
help investors to go beyond the limitations of conventional investing
and face today’s market challenges. ProShares helps investors build
better portfolios by providing access to alternative investments
delivered with the liquidity, transparency and cost effectiveness of
ETFs. Our lineup of over 145 alternative ETFs can help you reduce
volatility, manage risk and enhance returns.
ProShares has the largest lineup of alternative ETFs in the United
States according to Strategic Insight, based on analysis of all the
known alternative ETF providers (as defined by Strategic Insight) by
their number of funds and assets (as of 1/31/2014).
Investing involves risk, including the possible loss of principal.
These ProShares ETFs are diversified and entail certain risks, including
risks associated with the use of derivatives (swap agreements, futures
contracts and similar instruments), imperfect benchmark correlation,
leverage and market price variance, all of which can increase volatility
and decrease performance. Bonds will decrease in value as interest rates
rise. High yield bonds may involve greater levels of credit, liquidity
and valuation risk than for higher-rated instruments. Short positions
lose value as security prices increase. Narrowly focused investments
typically exhibit higher volatility. Please see their summary and full
prospectuses for a more complete description of risks. There is no
guarantee any ProShares ETF will achieve its investment objective.
IGHG and HYHG do not attempt to mitigate factors other than rising
Treasury interest rates that impact the price and yield of corporate
bonds, such as changes to the market’s perceived underlying credit risk
of the corporate entity. IGHG and HYHG seek to hedge investment grade
bonds and high yield bonds, respectively, against the negative impact of
rising rates by taking short positions in Treasury futures. These
positions lose value as Treasury prices increase. Investors may be
better off in a long-only investment grade or high yield investment than
investing in IGHG or HYHG when interest rates remain unchanged or fall,
as hedging may limit potential gains or increase losses. No hedge is
perfect. Because the duration hedge is reset on a monthly basis,
interest rate risk can develop intra-month, and there is no guarantee
the short positions will completely eliminate interest rate risk.
Furthermore, while IGHG and HYHG seek to achieve an effective duration
of zero, the hedges cannot fully account for changes in the shape of the
Treasury interest rate (yield) curve. IGHG and HYHG may be more volatile
than a long-only investment in investment grade or high yield bonds.
Performance of IGHG and HYHG could be particularly poor if investment
grade or high yield credit deteriorates at the same time that Treasury
interest rates fall. There is no guarantee the fund will have positive
returns.
“CITI” is a trademark and service mark of Citigroup Inc. or its
affiliates, is used and registered throughout the world, and has been
licensed for use by ProShares. ProShares ETFs based on the “Citi
Corporate Investment Grade (Treasury Rate-Hedged) Index” and the “Citi
High Yield (Treasury Rate-Hedged) Index” are not sponsored, endorsed,
sold or promoted by Citigroup Index LLC (“Citi Index”) or its affiliates
(collectively, “Citigroup”), and they make no representation regarding
the advisability of investing in ProShares ETFs. CITI INDEX MAKES NO
EXPRESS OR IMPLIED WARRANTIES OF ANY KIND, INCLUDING, BUT NOT LIMITED
TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR USE. In no event shall Citigroup be liable for any direct,
indirect, special or consequential damages in connection with any use of
the “Citi Corporate Investment Grade (Treasury Rate-Hedged) Index.”
Carefully consider the investment objectives, risks, charges and
expenses of ProShares before investing. This and other information can
be found in their summary and full prospectuses. Read them carefully
before investing.
ProShares are distributed by SEI Investments Distribution Co., which is
not affiliated with the funds’ advisor or sponsor.
Copyright Business Wire 2014