U.S. markets closed

Practical Application of Alternatives in ETF Portfolios


Alternative investments are not a new theme. Implementation of “liquid alts” strategies by financial advisors in client portfolios using exchange traded funds is a relatively new concept, but one that is gaining momentum thanks to the introduction of new products, including the ProShares Morningstar Alternatives Solution ETF (ALTS) .

Data indicate advisors want to know more about liquid alts and to employ these strategies and ETFs such as ALTS in client portfolios. Of nearly 1,000 advisors surveyed at the Alts & Income Virtual Summit in May sponsored by ETF Trends and RIA Database, 45% said they would love to learn more about alternative investments while 37% said they expect to boost allocations to alternatives over the next year.

On Thursday’s webcast Your Alternatives Strategy in One ETF, ProShares Head of Investment Strategy Simeon Hyman and Ibbotson Portfolio Manager Lucian Marinescu will discuss ALTS and how alternative investments can be blended together to help to create better risk-adjusted results for traditional portfolios.

ProShares is taking an active approach to educating advisors and investors about ALTS and how the new ETF can be used in client portfolios. The issuer is conducting five roadshows on the new ETF before the end of this year with additional roadshows planned for 2015.

“We have to show people how to implement alternatives in their portfolios. ALTS helps because the ETF is an alternative solution in a single trade,” said ProShares Managing Director Don Roberson in an interview with ETF Trends.

ALTS, which tracks the Morningstar Diversified Alternatives Index, is the only ETF based on a Morningstar index comprising a broad range of alternative strategies. Increasing the allure of the new ETF, both for advisors experienced with alternative investments and those new to alts is the fund’s one-stop shopping approach. [ProShares Launches New Alts ETF[]

ALTS uses an “ETF of ETFs” methodology, meaning the Morningstar Diversified Alternatives Index is comprised of seven other ProShares ETFs, led by the ProShares RAFI Long/Short ETF (RALS) . ALTS also featues exposure to the ProShares Hedge Replication ETF (HDG) , an ETF that replicates hedge fund performance aimed at damping market risk. [Alternative ETF Strategies].

Other familiar holdings include the ProShares Global listed Private Equity ETF (PEX) and the ProShares DJ Brookfield Global Infrastructure ETF (TOLZ) , which debuted in March .

ProShares also launched the ProShares Managed Futures Strategy (FUTS) earlier this month as a way of filling out all the asset classes necessary for the Morningstar Diversified Alternatives Index. Managed futures strategies are also used in asset classes such as bonds and currencies, aiming to garner value in a variety of market conditions. Managed futures portfolios have historically provided risk-adjusted returns comparable to those of stocks with low correlation to the stock and bond markets, according to ProShares. [ProShares Debuts Managed Futures ETFs]

“ALTS is a straightforward solution to access alternative asset classes, but folks want to dig into the product,” said Roberson. “We want to help people understand the index methodology, and Ibbotson will help in that process.”

Roberson points out that ALTS’ index methodology includes a momentum overlay, which allows the ETF’s holdings to be significantly reweighted, if circumstances dictate, at the fund’s monthly rebalances. Said differently, momentum is a key element in how ALTS’ holdings are weighted, according to Roberson.

Financial advisors who are interested in learning more about ALTS and how this new ETF can reduce correlations and volatility within client portfolios can register for the Thursday Oct. 30 webcast here.

ALTS Holdings


Table Courtesy: ProShares