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

Maryland bars advisor over charging excessive fees to clients
Maryland bars advisor over charging excessive fees to clients

Blue Anchor Capital Management and Pickett also purchased “highly aggressive and volatile” securities, according to the order.

Wave of SEC appointments signals regulatory shift with implications for financial advisors
Wave of SEC appointments signals regulatory shift with implications for financial advisors

Reshuffle provides strong indication of where the regulator's priorities now lie.

US insurers want to take a larger slice of the retirement market through the RIA channel
US insurers want to take a larger slice of the retirement market through the RIA channel

Goldman Sachs Asset Management report reveals sharpened focus on annuities.

Why DA Davidson's wealth vice chairman still follows his dad's investment advice
Why DA Davidson's wealth vice chairman still follows his dad's investment advice

Ahead of Father's Day, InvestmentNews speaks with Andrew Crowell.

401(k) participants seek advice, but few turn to financial advisors
401(k) participants seek advice, but few turn to financial advisors

Cerulli research finds nearly two-thirds of active retirement plan participants are unadvised, opening a potential engagement opportunity.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today’s choppy market waters, says Myles Lambert, Brighthouse Financial.

SPONSORED Beyond the dashboard: Making wealth tech human

How intelliflo aims to solve advisors' top tech headaches—without sacrificing the personal touch clients crave