Morningstar partners with ProShares to manage an alternative ETF

ALTS will track an index maintained by Morningstar that includes allocations to seven different alternative investment strategies
OCT 23, 2014
ETF provider ProShares has teamed up with Morningstar Inc. to launch an alternative strategy indexed exchange-traded fund, which began trading Thursday. The ProShares Morningstar Alternatives Solution ETF (ALTS) will track an index maintained by Morningstar that includes allocations to seven different alternative investment strategies. The Morningstar Diversified Alternative Index, which was created specifically for the new ETF and the partnership with ProShares, will apply a trend-following strategy that will re-balance monthly based on market and economic analysis, according to Scott Wentsel, chief investment officer of the Americas at Morningstar Investments. “As an example, in a risk-on environment, private equity or global infrastructure might be more attractive, and in a risk-off environment, the strategy might favor something like merger arbitrage,” he explained. The seven underlying alternative asset classes, all of which will be accessed using existing ProShares ETFs, include hedge funds, long-short equity, merger arbitrage, managed futures, breakeven inflation, global infrastructure and private equity. Mr. Wentsel said the index's risk profile is designed to be between that of stocks and bonds, and that the long-term performance target is 7% annually. ProShares Chairman Michael Sapir said the index and ETF project had been in the works for nearly a year and that it was developed based on feedback from the financial advisory community. “Coming off the financial crisis, we know that advisers have become more attuned to risk issues and they're looking for ways to paint portfolios with a broader pallet of investments,” he said. “We're hearing and seeing financial advisers just struggling with how much alternatives to use, what the mix should be, and they want to know how to do it.” Mr. Sapir added that in many instances, the complexity of allocating to alternatives is leading advisers to avoid the asset class entirely. “That's what was on our mind when we started talking with Morningstar about this product about a year ago,” he said. While the index on which the ETF is based is exclusively made up of ProShares ETFs, Mr. Sapir said it was important to tap the independent expertise of Morningstar. “ProShares is the provider of the delivery vehicle — the ETF — and we provide the underlying ETFs, but Morningstar provides the index that the ETF is based off,” he said. “We engaged Morningstar in these conversations to capitalize on their brand and reputation in the marketplace.”

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