Assuming the ProShares funds come to market, it will be interesting to see if the ETFs gain traction with retail investors. CDS are often viewed as complex, opaque products by retail investors and many of those investors have a negative image of CDS following the global financial crisis. A number of bond ETFs are wildly popular with retail investors, but a fund based CDS may not be appealing to the most conservative fixed income investors. [ETF Flows on Pace to Break $200 Billion]
That does not mean these ETFs will not be successful. In fact, these funds could be the beneficiaries of good timing. If interest rates spike, lowly-rated borrowers that issued high-yield bonds at today’s low rates could be forced to pay old debt with new debt issued at higher rates, a scenario that could increase the allure of CDS.
Even if the ProShares do not immediately capture the attention of retail investors, professional traders could be fertile territory for the ETFs. Although global outstanding volume on credit derivatives is down from 2010, it was still a $26 trillion market last year, reports Karen Brettell for Reuters.
ETF Trends editorial team contributed to this report.