Out with the old and in with the new. ProShares is planning to close a managed futures exchange traded fund but will be replacing it with an actively managed version that could potentially better adapt to volatile market conditions.
The ProShares Managed Futures Strategy (BATS: FUT) began trading Thursday, February 18, according to a press release.
ETF investors who are having a déjà vu moment should not confuse FUT with the ProShares Managed Futures Strategy (NYSEArca: FUTS), which has been trading since October 1, 2014.
With the updated version now on the market, ProShares is planning to shutter FUTS. After the market close, FUTS will no longer accept creation orders – the older managed futures ETF’s price may diverge from its net asset value. The fund will be liquidated by March 21, so anyone still holding onto FUTS shares will automatically have their shares redeemed for cash at the net asset value.
Managed futures strategies have very low, and even negative, correlations to the stock market. They target trends in teh futures market and take long or short positions across a number of asset classes, like commodities, currencies and fixed income. The strategy gained traction after 2008 when the handful of mutual funds in the category and their hedge fund counterparts held up while the rest of the market plunged.
“Managed futures strategies have the potential to deliver positive returns in both rising and falling markets,” Michael L. Sapir, chairman and CEO of ProShare Advisors LLC, said in the press release. “With their low correlation to both stocks and bonds, managed futures strategies can help diversify a stock and bond portfolio.”
The managed futures strategy has outperformed the U.S. equities market in the recent correction. FUTS dipped 1.1% year-to-date while the S&P 500 index fell 5.4%.
Along with trading on the BATS exchange, FUT show some variations to the older FUTS. FUT is registered under the Investment Company Act of 1940, so investors won’t have to fill out a K-1 tax form. In contrast, the older FUTS is regulated by the Securities Act of 1933 and generates a K-1 form.
FUT is also actively managed and will seek positive returns that are not directly correlated to the equity or fixed income markets. The active ETF will use the S&P Strategic Futures Index as a performance benchmark, the same underlying index that FUTS follows.
As of February 17, FUT held long positions in lean hogs, gold, the Eurozone euro, Japanese yen, 10-year Treasuries and long-term Treasuries, along with short positions in chicago wheat, corn, soybeans, coffee, sugar, cocoa, cotton, heating oil, unleaded gasoline, WTI crude oil, natural gas, copper, silver, Australian dollar, British pound and Canadian dollar.
FUT comes with a 0.75% expense ratio, similar to FUTS’ fund fee.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.