VelocityShares, the money management firm known so far for its family of volatility-focused ETNs, has filed regulatory paperwork detailing its first five ETFs— a duo of hedged large-cap equity funds and a separate trio of equities funds focused on different pieces of the emerging markets universe .
The company has around $770 million in assets in its family of volatility ETNs, but has long intended to enter the world of ETFs. It is doing so via ALPS, the Denver-based fund distribution firm that also sponsors a number of ETFs, including the $4 billion Alerian MLP ETF (AMLP).
The two separate filings were made under the ALPS ETF Trust name, and VelocityShares is responsible for the creation of the specific indexing strategies involved in the hedged large-cap funds, while the emerging markets funds have indexes from BNY Mellon, the filings said.
The hedged large-cap funds, which will be funds-of-funds composed of ETFs are:
- VelocityShares Tail Risk Hedged Large Cap ETF
- VelocityShares Volatility Hedged Large Cap ETF
The emerging markets strategies, each of which will focus on relatively liquid global depositary receipts listed in London, are:
- VelocityShares Emerging Markets Depositary Receipt ETF
- VelocityShares Russia Select Depositary Receipt ETF
- VelocityShares Emerging Asia Depositary Receipt ETF
The filing didn’t specify ticker symbols or expense ratios for any of the funds, but did say the emerging markets ETFs would have primary listings on the Nasdaq stock exchange.
The pair of large-cap hedged strategies will each be composed of the same five underlying ETFs—and at the same percentages, namely 85 percent equities and 15 percent volatility exposure. The 85-15 scheme will be rebalanced monthly, according to the prospectus.
But, crucially, the specific volatility-fund allocation schemes will differ in the “Tail Risk Hedged” and “Volatility Hedged” funds.
So, all the ETFs, which will again all be the same in both proposed large-cap funds, are:
- SPDR S'P 500 ETF (SPY)
- Vanguard S'P 500 ETF (VOO)
- iShares S'P 500 Index Fund (IVV)
- ProShares Ultra VIX Short-Term Futures ETF (UVXY), a double-exposure long volatility fund focusing on the short end of the VIX futures curve
- ProShares Short VIX Short-Term Futures ETF (SVXY), a single-exposure short volatility fund that’s also focused on the short end of the VIX futures curve
The differences, again, are in the breakdown of the 15 percent allocations involving the volatility ETFs. The specifics of the two indexes as follows:
- VelocityShares Tail Risk Hedged Large Cap Index will be 45 percent allocated to UVXY, the double-long volatility ETF; and 55 percent allocated to SVXY, the single-short volatility ETF
- VelocityShares Volatility Hedged Large Cap Index will be one-third allocated to UVXY and two-thirds allocated to SVXY
Broad Emerging Market Fund
The broad developing market strategy was allocated to 21 countries at the end of August 2012, according to the filing.
The top 11 countries and their percentages of at least 1 percent as of that date were Brazil at 21.31 percent; Russia at 17.53 percent; China at 14.9 percent; South Korea at 13.52 percent; Taiwan at 9.77 percent; India at 6.49 percent; Mexico at 6.19 percent; South Africa at 3.11 percent; Chile at 2.38 percent; Turkey at 1.2 percent; and Colombia at 1.1 percent.
The remaining 10 countries, each of which made up less than 1 percent, were Indonesia, Egypt, Peru, Philippines, Kazakhstan, Argentina, Nigeria, Lebanon, Oman and Ukraine.
The fund targeting developing Asia had the following allocations as of Aug. 31, 2012:
- China – 31.52 percent
- South Korea – 30.04 percent
- Taiwan – 21.71 percent
- India – 14.42 percent
- Indonesia – 1.49 percent
- Philippines – 0.82 percent
As noted, the Russia fund, as well as the other two developing market ETFs, will have indexes created by BNY Mellon.
The prospectus detailing the developing market funds was dated Sept. 19, 2012, while the one describing the hedged large-cap strategies was dated Sept. 7, 2012.
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