You, too, can play hedge fund manager with new credit swap ETFs

Eight new funds offer chance to wager on the riskiest to safest corporate borrowers.
JUN 19, 2014
If you (or your grandmother) want to bet your savings on a bundle of credit derivatives, it'll be easy to do so through a new swath of exchange-traded funds. The ETFs may not have been created with her in mind, but she'll be able to buy their shares. Regulators this month signed off on a plan to allow trading in eight new ProShares ETFs backed by wagers on the creditworthiness of the riskiest to the safest corporate borrowers. Those funds, which package credit-default swaps, join more than 250 others that are based on derivatives, an arena traditionally dominated by hedge funds. The reality is that while anyone can invest in these ETFs, which provide easy access to harder-to-trade, privately negotiated markets, the target demographic is probably institutional investors. They are a growing presence among buyers of fixed-income ETF shares, which trade on exchanges like stocks and are backed by everything from Treasuries to below investment-grade loans. (See also: Winklevoss twins seek Nasdaq listing for bitcoin ETF) About two-thirds of debt managers are using ETFs this year, up from 55% in 2013, according to a Greenwich Associates survey released Monday. Why? Because they're easy to buy and the underlying markets are, in many cases, becoming harder to navigate as Wall Street dealers cut their inventories of debt traditionally used to facilitate trading. MORE EXOTICA The Securities and Exchange Commission granted approval to BATS Exchange Inc. to list the funds from ProShares, which calls itself “the alternative ETF company,” according to a May 6 notice. They include four pairs of funds that take bullish and bearish positions on high-yield and top-tier companies in Europe and the U.S., using credit swaps. “ETFs are gaining traction in asset classes outside equities, especially in fixed income,” which may continue because of changes in market structure, wrote Greenwich Associates analysts in the study, which was sponsored by BlackRock Inc. The result is that the plain-vanilla universe of ETFs is getting more exotica thrown in the mix. So retirees and pensioners, if you want to bet that junk-rated companies are going to struggle to pay their bills in the near term, ProShares CDS Short North American HY Credit ETF may be just for you. Otherwise, perhaps these are better left to the professionals. (Bloomberg News)

Latest News

The 2025 InvestmentNews Awards Excellence Awardees revealed
The 2025 InvestmentNews Awards Excellence Awardees revealed

From outstanding individuals to innovative organizations, find out who made the final shortlist for top honors at the IN awards, now in its second year.

Top RIA Cresset warns of 'inevitable' recession amid tariff uncertainty
Top RIA Cresset warns of 'inevitable' recession amid tariff uncertainty

Cresset's Susie Cranston is expecting an economic recession, but says her $65 billion RIA sees "great opportunity" to keep investing in a down market.

Edward Jones joins the crowd to sell more alternative investments
Edward Jones joins the crowd to sell more alternative investments

“There’s a big pull to alternative investments right now because of volatility of the stock market,” Kevin Gannon, CEO of Robert A. Stanger & Co., said.

Record RIA M&A activity marks strong start to 2025
Record RIA M&A activity marks strong start to 2025

Sellers shift focus: It's not about succession anymore.

IB+ Data Hub offers strategic edge for U.S. wealth advisors and RIAs advising business clients
IB+ Data Hub offers strategic edge for U.S. wealth advisors and RIAs advising business clients

Platform being adopted by independent-minded advisors who see insurance as a core pillar of their business.

SPONSORED Compliance in real time: Technology's expanding role in RIA oversight

RIAs face rising regulatory pressure in 2025. Forward-looking firms are responding with embedded technology, not more paperwork.

SPONSORED Advisory firms confront crossroads amid historic wealth transfer

As inheritances are set to reshape client portfolios and next-gen heirs demand digital-first experiences, firms are retooling their wealth tech stacks and succession models in real time.