VelocityShares, the Darien, Conn.-based designer of exchange-traded products that's known so far for its family of volatility-focused ETNs, today launched a duo of hedged large-cap equity funds under the ALPS ETF Trust name after calling off its June 21 launch for administrative reasons, according to a communique issued on Friday by the New York Stock Exchange.
The rollouts mark the company’s intention to expand beyond its niche of volatility-focused exchange-traded notes. Two months ago, the company brought to market its first ETFs—a trio of equities funds focused on different emerging markets pockets that each invest solely in American depositary receipts.
The hedged large-cap funds that are going live today are funds-of-funds composed of ETFs. Both have annual expense ratios of 0.71 percent, or $71 for each $10,000 invested, including acquired fund fees related to the fund’s ownership of other ETFs as part of their strategies. The funds are:
- VelocityShares Tail Risk Hedged Large Cap ETF (TRSK)
- VelocityShares Volatility Hedged Large Cap ETF (SPXH)
The company has around $900 million in assets in its family of volatility ETNs, but has intended to enter the world of ETFs for quite some time. The first three ETFs it launched in April—the emerging markets strategies own American depositary receipts—together have gathered approximately $10 million, according to data compiled by IndexUniverse.
The New Hedged ETFs
The pair of large-cap hedged strategies are 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, the funds’ prospectus said.
But, crucially, the specific volatility-fund allocation schemes will differ in the “tail risk hedged” and “volatility hedged” funds.
All the ETFs used in both strategies, which will, again, be the same in both 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 are 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.
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