ProShares, a major purveyor of leveraged and inverse exchange traded fund strategies, expects huge growth in ETFs ahead, along with rising appetite for alternative strategies to navigate quickly changing market conditions.
We are heading into the ninth year in the equities bull market and seeing a three decade bull run in bonds. Consequently, investors should begin to consider hedging and alternative strategies if we see volatility and corrections after these extended rallies.
For instance, Simeon Hyman, Head of Investment Strategy at ProShares, pointed out that there is big appetite for leveraged and inverse crude oil exposure to hedge or capitalize on moves in the energy markets as production cuts out of the Organization of Petroleum Exporting Countries, upstart hydraulic fracturing or fracking industry, environmental considerations and swings in the U.S. dollar all weigh on the crude outlook.
ProShares partnered up with UBS and recently launched the UBS ETRACS – ProShares Daily 3x Long Crude ETN (NYSEArca: WTIU) and UBS ETRACS – ProShares Daily 3x Inverse Crude ETN (NYSEArca: WTID).
“ProShares saw the opportunity. UBS wanted to work with Proshares and leverage the ProShares brand. The largest provider of ETNs joining with the largest provider of inverse and leverage,” Morgan Gold, managing director and head of marketing, told ETF Trends in a call.
The two exchange traded notes may quench the large demand for a bullish or bearish view on the crude oil market, potentially filling in the void left by Credit Suisse’s delisting of its popular oil-related ETNs.
“With a modest amount of capital, these ETNs will allow investors to take a meaningful position in oil,” Hyman told ETF Trends.
Along with rising demand for leveraged and inverse strategies, Hyman expects greater interest for strategic- or smart-beta positions as well.
For example, the ProShares S&P 500 Aristocrats ETF (BATS: NOBL), ProShares Russell 2000 Dividend Growers ETF (BATS: SMDV) and ProShares S&P MidCap 400 Dividend Aristocrats ETF (BATS: REGL) provided targeted exposure to dividend growth stocks that have exhibited a history of raising dividends. The strategy has been an attractive way to focus on quality companies that experience lower volatility to limit risk while providing exposure to any potential upside, along with steady yields.
Moreover, with the Federal Reserve anticipating three more interest rate hikes this year, fixed-income investors are taking a look at interest-rate hedged bond ETF options, like ProShares Investment Grade-Interest Rate Hedged ETF (BATS: IGHG) and ProShares High Yield Interest Rate Hedged ETF (BATS: HYHG), which target a zero duration so the funds have little to no sensitivity to changes in interest rates and may outperform non-rate-hedged bond funds if rates continue to rise.
“Its already affecting income portfolios to the negative side,” Hyman added. “The trend continues. There’s going to be more pain if you’re not hedged after rates falling for 30 years.”
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