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ProShares’ Burger King Idea: “Ex-Sector” ETF Menu

Hold the pickles, and hold the lettuce…Just when MarketsMuse curators and an assortment of ETF market enthusiasts thought there might already be enough themes, toppings and twists to the growing number of exchange-traded funds, ProShares is taking a page straight out of Burger King’s 1970’s branding campaign via a newly-launched menu of “ex-sector ETFs.”  The new, S&P-centric menu enables investors to have it their way and to express bets in the S&P 500, but “ex” specific sub sectors. Confused as to why? According to a report by CNBC’s Alex Rosenberg, so are select industry professionals who view this innovation as convoluted. Below is an excerpt from Rosenberg’s juicy bytes..

proshares bk have it your wayA new set of exchange-traded funds offered by ProShares allows investors to get exposure to the entire S&P 500, save for one or another given sector. Specifically, the company now offers ETFs tracking the S&P 500 ex-energy (trading under the ticker symbol SPXE), ex-financials (SPXN), ex-health care (SPXV) and ex-technology (SPXT).

In a Thursday interview with CNBC’s “Trading Nation,” ProShares’ head of investment strategy, Simeon Hyman, highlighted two anticipated uses for the ETFs: diversification and tactical decision-making.

Hyman provides the example of an investor who already has high exposure to a given sector—such as an executive compensated in a company’s stock, or an inheritor who has received a large number of shares—and does not want to take on excess exposure.

“Previously you’d have to maybe call up a trust company or find someone to run a custom strategy for you to avoid that sector, and here it’s just very straightforward: Buy an ETF. The sector’s out, it’s redistributed across the other names on a market-cap-weighted basis, you don’t have to worry about it,” Hyman said.

Second, the ETFs are designed for those who believe a given sector, such as energy, is set to underperform the rest of the market. “If you have that conviction, this is a very straightforward and easy way to effect that view,” he said.

Yet given that retail investors are often considered to be best served by buying into the overall market and avoiding tactical calls, some say these ETFs might be an inferior play compared to, say, SPDR’s popular S&P 500 ETF (SPY).

“As a core holding, you are far less diversified,” Eric Mustin, vice president of ETF trading solutions at WallachBeth Capital, wrote to CNBC. “You are implicitly overweight the other sectors versus the S&P 500 weightings.” The expense ratio, at 0.27 percent, also irks Mustin.

“You are paying nearly 200 percent to 300 percent the management fees” compared to a product like the (SPY), he pointed out. “I think it’s a product that may find some success among a retail audience, but sophisticated investors probably won’t have an appetite for it.”

When there is a “pronounced discrepancy in attractiveness,” such as the clear unattractiveness of energy at the beginning of the year given dismal earnings expectations and high valuations, “it would seem logical to exclude that sector,” S&P Capital IQ’s equity chief investment officer, Erin Gibbs, wrote to CNBC.

“However, these clear-cut unattractive sector events do not happen that often, and therefore these products could have limited appeal,” she added. Here’s what Hyman has to say:

And, as a special treat to MarketsMuse readers who are “of age”, here’s a dandy clip that adds flavor to this story:

Exotic ETFs Going Mainstream

Leveraged and inverse exchange-traded funds received a lot of scrutiny during the volatility of last year. But now that volatility is down and equities are on the rise, investors are more and more viewing these once exotic products as just another way to take positions on the direction of the markets.

That was the opinion of ETF insiders speaking on the panel “Volatility and Leveraged ETFs” at the Security Traders Association of New York conference on Thursday. ETFs that are leveraged two, three times, or even more, or that move in an inverse relationship to indexes like the S&P 500, are slowly becoming more accepted.

Stephen Sachs, head of capital markets for ProShares, said that while ETFs drew a lot of attention during high-volatility periods last year, the actual evidence suggests those instruments did not cause the volatility. Leveraged and inverse products were only a small part of trading during those periods, and important macro events were also very much in play, he said.

“At the end of the day, volatility is not an asset,” Sachs said. He added that unlike actual asset classes, investors don’t take buy and hold positions on the VIX. Investors in VIX ETFs need to understand that the product exists for taking positions on risk, not for long-term investments.

Chris Hempstead, director of ETF execution at WallachBeth Capital, said inverse and leveraged products have gotten more than their fair share of press. However, they too serve a specific purpose, and the investment community needs to learn more about them.  “If you trade anything, you should be paying attention to the ETF market,” Hempstead said. “It [the market] is a lot harder [to understand] than it was five years ago.” Continue reading

ProShares To Reverse-Split VIX ETF UVXY


Courtesy of IndexUniverse, reporting from Oliver Ludwig:

ProShares, the fund company known for its large family of inverse and leveraged ETFs, set a 1-for-6 reverse split on its now-super-popular VIX-related ETF “UVXY” to ensure that bid/ask spreads on the security don’t grow too large as a percentage of its declining share price.

The fund, the double-long ProShares Ultra VIX Short-Term Futures ETF (NYSEArca: UVXY), has been in the news since last week, when its popularity began soaring in the wake of Credit Suisse’s decision to halt creations of the VelocityShares Daily 2X VIX Short-Term ETN (NYSEArca: TVIX)—an exchange-traded note that delivers similar exposure to the VIX volatility curve as UVXY.

The decision to do a reverse split on UVXY isn’t related to the explosion of interest in the ETF, but is a function of the downward pressure on VIX futures over the past several months. UVXY was worth more than $34 a share when it came to market in October of last year, and it’s now trading at $5.60, according to Google Finance. It has lost more than half its value since the beginning of the year.

Even though UVXY often trades with a bid/ask spread of just 1 cent, that penny becomes a more conspicuous trading cost the cheaper the ETF becomes. The 1-for-6 reverse split, effective March 8 for shareholders of record as of the close on March 7, will pump up the share price about six times and cut the number of outstanding shares by about the same amount.

At today’s price, UVXY, now the only double-long exchange-traded product that’s taking in new money, would be worth more than $33 a share on a post-split basis. Continue reading