ProShares, the world's largest purveyor of leveraged and inverse
ETFs, filed with the Securities and Exchange Commission for broad
permission to market active ETFs that target stocks, bonds and
currencies, and detailed an emerging market debt fund as the first
fund it plans to roll out.
The mention of the ProShares Emerging Market Debt ETF makes it
clear that the company is casting a wide net around the world as it
begins its foray into actively managed ETFs. The filing didn't make
clear whether the fund would hold bonds denominated in dollars or
in other currencies, though the imprecise wording suggests the fund
could hold both.
Whatever the case, choosing an initial fund focused on both
fixed income and on the emerging markets suggests that Bethesda,
Md.-based company has its finger on the pulse of what's hot in the
world of ETFs. The filing also suggests ProShares is serious about
adding another piece to its business that isn't directly related to
the leveraged and inverse space it dominates.
Indeed, one of the most successful realms of active ETFs has
been fixed income, and emerging market debt funds per se have
pretty much been all the rage for almost the past two years. One of
the granddaddies in the space, the dollar-denominated iShares
JPMorgan USD Emerging Markets Bond Fund (NYSEArca:EMB), has about
$4.31 billion in assets. But EMB is an index ETF.
Active Debt ETFs Are Hot
Closer to home is the actively managed WisdomTree Emerging
Markets Local Debt Fund (NYSEArca:ELD). ELD has gathered $1.17
billion in assets since its inception in August 2010.
ELD is now the third-biggest active ETF behind the Pimco
Enhanced Short Maturity Strategy (NYSEArca:MINT) and the Pimco
Total Return ETF (NYSEArca:BOND).
MINT, the biggest active fund, has $1.74 billion in assets, and
BOND, which came to market March 1, has $1.37 billion, making it
among the most successful launches ever.
Still, active ETFs make up less than 1 percent of the $1.150
trillion in total U.S.-listed ETF assets as of June 12, according
to data compiled by IndexUniverse. That percentage jumps to between
4 and 5 percent when considering just fixed-income ETFs.
No Derivatives For Now
ProShares said in the filing that the proposed emerging markets
fund-or any future funds that the "exemptive relief" filing will
allow-won't for now use derivatives in the form of options
contract, futures contracts or swap agreements.
That said, ProShares said it might reserve the right to pursue
the use of such derivatives if SEC rules change to permit them.
Derivatives use in active and leveraged funds has been under review
at the commission since March 2010.
ProShares' initial emerging markets debt fund will seek to
achieve its strategy by typically investing at least 80 percent of
its total assets in a diversified portfolio of fixed-income
instruments of varying maturities issued by government, corporate
and/or other issuers domiciled in emerging market countries, the
company said in the filing.
Also, the ETF may invest a large percentage of its assets in
issuers in a single country, a small number of countries or a
particular geographic region, the exemptive relief filing said.
Exemptive relief grants ETF firms exception to sections of the
Investment Act of 1940 and is just the first step in the path to
launching ETFs. It often takes at least six to 12 months from the
date of the initial filing for a company's first ETF to hit the
market.
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