ProShares is best known for its extensive lineup of leverage and inverse ETFs which stretch across a number of asset classes and segments. However, the firm has expanded its focus on the ‘regular’ ETF market as well in recent years as it has seen the debut of a handful of these products in order to round out its lineup to more longer-term focused investors (see Five Emerging Market Infrastructure ETFs for the Coming Boom).
In fact, investors saw a few of these products hit the market in 2012 including the USD Covered Bond ETF (COBO), the German Sovereign/Sub-Sovereign ETF (GGOV), and the Merger ETF (MRGR), showcasing that the company is committed to this unleveraged space. If that wasn’t enough, the firm is also looking to get into the global ETF market with an infrastructure play as evidenced by its latest filing with the SEC.
While a number of details were not available in the initial release—such as expense ratio or ticker symbol—some key points were released in the filing, which we have highlighted below for investors who may be looking for a new infrastructure play from ProShares should it pass regulatory hurdles:
The proposed fund looks to track the NMX 30 Infrastructure Global Index which is a benchmark of 30 of the largest and most liquid firms, from around the world, that are engaged in the development of basic infrastructure facilities. The index provider, LPX, defines basic infrastructure as facilities that are physical, constructible objects that have a long life and a high investment cost (see Time to Buy the India Infrastructure ETF).
Additionally, these infrastructure components generally have low operating costs, inelastic demand, and high barriers of market entry. According to the filing, LPX believes that a combination of these characteristics creates a ‘natural monopoly’ which can create favorable investment conditions.
This is kind of a vague definition, but this generally refers to companies that are engaged in the creation of toll roads/bridges, airports, ports, pipelines, communication networks, and electric power grids. These types of infrastructure are arguably the building blocks of a nation and, in addition to being crucial, have a great deal of pricing power due to the wide moat nature of these types of projects.
Companies that engage in these types of projects are generally lower risk than the overall market, while they also pay out solid yields as well. This could make these types of firms solid choices for investors seeking some low beta choices, while they probably won’t be appropriate for investors seeking a strong growth or high risk play (read Why It Is Time for the Brazil Infrastructure ETF).
It doesn’t appear as though there are a host of competitors to this proposed ETF in the ‘basic infrastructure’ segment. However, in terms of global infrastructure ETFs, there are a number of already established funds which could act as deeply entrenched foes for any future ProShares product.
In particular, iShares’ IGF and SPDR’s GII both look to be decent options in the global infrastructure market. These two both launched in 2007 so they have been out there for quite some time, though their total combined AUM is less than $500 million.
This, along with average volumes for both below 100,000 suggests that investors haven’t really embraced the space, despite some decent returns, modest fees, and hefty yields which exceed 4% on an annual basis.
Given this, it will be interesting to see if ProShares can obtain approval for this fund and if its focus on ‘basic’ infrastructure will be enough to propel it to a decent level of AUM past some of the others in the space (see Q4 ETF Asset Report: Broad Market ETFs Reign).
If the holdings in this type of product are different enough, and if ProShares can sell investors on this as a great wide moat strategy, it could be a winner. However, the battle for AUM in this space will certainly be difficult, especially given than at least a few of the competitors have had a half decade head start in what is still an overlooked segment of the global stock market.
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