Opening up a new avenue of alternative investment strategies that are traditionally in the domain of hedge funds, ProShares received approval for eight new exchange traded funds that track credit default swaps.
According to a recent filing, the Securities and Exchange Commission signed off on eight new actively managed credit default swaps ETFs, including the ProShares CDS North American HY Credit ETF, ProShares CDS Short North American HY Credit ETF, ProShares CDS North American IG Credit ETF, ProShares CDS Short North American IG Credit ETF, ProShares CDS European HY Credit ETF, ProShares CDS Short European HY Credit ETF, ProShares CDS European IG Credit ETF and the ProShares CDS Short European IG Credit ETF.
The new CDS ETFs will be listed on the BATS exchange. No ticker symbols have yet to be provided.
Credit default swaps, or CDS, provide a way to play the creditworthiness of the riskiest to the safest corporate debt issuers. Essentially, CDS hedge against possible issuer default on bonds. CDS buyers pay sellers until the contract matures. In turn, the seller agrees to compensate the buyer in the event of default. [Because You Need a CDS ETF]
If you believe a debt market, like junk bonds or European corporate debt issuers, will struggle to pay back loans, then a CDS ETF could provide a hedge against the targeted markets.
While these new funds will help retail investors access the harder-to-trade, privately negotiated markets, CDS ETFs will likely attract institutional investors, writes Lisa Abramowicz for Bloomberg.
According to Greenwhich Associates, about two-thirds of debt managers utilized ETFs this year, up from 55% in 2013, due to the increased difficulty and liquidity issues in the underlying markets. [Institutions Continue to Expand ETF Usage, Say BlackRock, Greenwich]
“ETFs are gaining traction in asset classes outside equities, especially in fixed income,” which may continue because of changes in market structure, Greenwich Associates analysts said in a recent study.
For more information on new fund products, visit our new ETFs category.
Max Chen contributed to this article.