ProShares Hedged Junk ETF Nears Launch

ProShares, the purveyor of “alternative” exchange-traded funds, filed updated regulatory paperwork suggesting its planned high-yield corporate debt fund that will take short positions in U.S. Treasurys as a hedge is close to launch. It will be the third—and least expensive—entrant in a growing field of yield-seeking junk bond funds with hedges.

The new paperwork revealed for the first time that the ProShares High Yield-Interest Rate Hedged ETF will trade under the symbol “HYHG” and will come with an annual expense of 0.50 percent, or $50 for each $10,000 invested—again, less costly than the two competing funds from Van Eck Global and First Trust.

The three high-yield corporate bond funds, each in its own way, will short Treasurys to offset their junk bond exposure. The marketing of the strategies amounts to a sign fund sponsors want to address anxiety that already-paltry bond yields could morph into a disastrous rout if bond investors have to ride out a sell-off as interest rates head higher going forward.

“By taking these short positions, the Index seeks to mitigate the potential negative impact of rising Treasury interest rates (“interest rates”) on the performance of high yield bonds (conversely limiting the potential positive impact of falling interest rates),” Bethesda, Md.-based ProShares said in the updated registration statement.

ProShares, which is the world’s biggest purveyor of leveraged and inverse ETFs, is pricing HYHG with a 50-basis-point fee waiver, helping to undercut its competitors.

A Lower Expense Ratio

The First Trust High Yield Long/Short ETF (HYLS) was launched in late February and has a total expense ratio of 1.19 percent a year. That consists of 0.95 percent in management fees, 0.23 percent leverage costs and 0.01 percent in acquired funds fees.

The Market Vectors Treasury-Hedged High Yield Bond ETF (THHY) came to market on March 22, and costs 1.45 percent a year after a fee waiver. That includes 45 basis points in management fees, 95 basis points in interest on securities sold short and cost to borrow, and 11 basis points in “other expenses.”

ProShares is the No. 6 U.S. ETF sponsor, with just over $24.37 billion in assets, according to IndexUniverse’s latest daily “ ETF League Table .”

Total U.S.-listed ETF assets are meanwhile at around $1.529 trillion , according to data compiled by Ind exUniverse.

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