ProShares®, a premier provider of alternative exchange traded funds (ETFs), today announced the launch of the ProShares Hedge Replication ETF (NYSE: HDG). HDG’s benchmark is based on Merrill Lynch’s recognized hedge fund replication model. The ETF lists on NYSE Arca today.
HDG seeks to provide the risk/return characteristics of a broad universe of hedge funds without many of the challenges of hedge fund investing. Historically, a broad universe of hedge funds, as measured by the HFRI Fund Weighted Composite Index, has had attractive risk-adjusted returns relative to equities1 (past performance is not a guarantee of future results). However, there are many deterrents to investing in hedge funds, such as illiquidity, limited transparency and high fees.
“Many portfolios could benefit from the risk/return characteristics of hedge funds, but investors often either can’t or don’t invest in hedge funds because of a variety of challenges,” said Michael L. Sapir, Chairman and CEO of ProShare Advisors LLC, ProShares' investment advisor. “We are pleased to offer an ETF that addresses challenges of hedge fund investing and may be, for many investors, an attractive alternative to hedge funds.”
HDG is the third ETF in the Alpha ProShares category. Alpha ProShares are designed to provide advanced investment strategies in an ETF and represent ProShares' further expansion within the alternative ETF space. ProShares introduced its first Alpha ProShares, the ProShares Credit Suisse 130/30 (NYSE: CSM), in July 2009 and its second Alpha ProShares ETF, the ProShares RAFI Long/Short (NYSE: RALS), in December 2010.
About HDG’s Benchmark
HDG seeks to match, before fees and expenses, the performance of the “Merrill Lynch Factor Model® — Exchange Series” (MLFM-ES).2 The MLFM-ES was developed by Merrill Lynch, a pioneer and leader in the field of hedge fund replication.
The MLFM-ES aims to provide the risk/return characteristics of a broad universe of hedge funds by targeting a high correlation to the HFRI Fund Weighted Composite Index, an equally weighted composite of more than 2,000 constituent hedge funds.
The MLFM-ES aims to achieve its goal through long or short exposures to six market factors. The exposures are arrived at through regression analysis of index return data.
ProShares is a premier provider of alternative ETFs, with 121 funds and more than $26 billion in assets. ProShares is the largest provider of geared (leveraged and inverse) ETFs.3 ProShares is part of ProFunds Group,® which was founded in 1997 and includes more than $32 billion in mutual fund and ETF assets.4
|1 Risk-adjusted return, as measured by Sharpe Ratios. Equities, as measured by the S&P 500.|
|2 Note that the Merrill Lynch Factor Model — Exchange Series (MLFM-ES) is a newly created benchmark that is similar to, but not the same as, the Merrill Lynch Factor Model (MLFM), which was introduced in 2006. Each factor model aims to achieve similar market exposures using comparable but different underlying instruments. The MLFM-ES is likely to underperform the MLFM over time due to differences in the underlying cash instruments.|
|3 Source: Lipper, based on a worldwide analysis of all of the known providers of funds in these categories. The analysis covered the number of ETFs and assets as of 6/30/2010.|
|4 Assets as of 7/1/2011.|
ProShares Hedge Replication ETF (HDG) does not invest in any hedge funds or funds-of-hedge-funds. There is no guarantee that HDG will successfully achieve its investment objective or that the Merrill Lynch Factor Model® – Exchange Series (MLFM-ES) will successfully provide the risk/return characteristics of a broad universe of hedge funds or achieve a high correlation with the HFRI Fund Weighted Composite Index (HFRI). Performance differences between MLFM-ES and HFRI are expected to be material at times. Even if HDG achieves its benchmark tracking objective, MLFM-ES may not produce the risk/return characteristics of a broad universe of hedge funds, as measured by HFRI or any other hedge fund benchmark. Individual hedge funds or funds-of-hedge-funds have the potential to provide materially higher or lower returns than HDG, MLFM-ES or the average return of a broad universe of hedge funds.
Investing involves risk, including the possible loss of principal. ProShares are non-diversified and entail certain risks, including risk associated with the use of derivatives (swap agreements, futures contracts and similar instruments), imperfect benchmark correlation, leverage and market price variance, all of which can increase volatility and decrease performance. Short positions lose value as security prices increase. Leverage can increase market exposure and magnify investment risk. Please see ProShares’ summary and full prospectuses for a more complete description of risks. There is no guarantee any ProShares ETF will achieve its investment objective.
Geared (leveraged and inverse) ProShares seek returns that are multiples or inverse multiples (e.g., 2x, -2x) of the return of an index or other benchmark (target) for a single day as measured from one NAV calculation to the next. Due to the compounding of daily returns, leveraged and inverse ProShares returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period. Investors should monitor their holdings consistent with their strategies, as frequently as daily, and rebalance if necessary.
Carefully consider the investment objectives, risks, charges and expenses of ProShares before investing. This and other information can be found in their summary and full prospectuses. Read them carefully before investing. Obtain them from your financial adviser or broker/dealer representative or by visiting proshares.com.
“Merrill Lynch Factor Model® – Exchange Series,” “Merrill Lynch Factor Model,®” and “Merrill Lynch InternationalTM” are intellectual property of Merrill Lynch, Pierce, Fenner & Smith IncorporatedTM or its affiliates (“BofAML”). “Credit Suisse” and “Credit Suisse 130/30 Large-Cap IndexTM” are trademarks of Credit Suisse Securities (USA) LLC or one of its affiliates. “Research Affiliates Fundamental Index®” and “RAFI®” are trademarks of Research Affiliates, LLC. All have been licensed for use by ProShares. ProShares have not been passed on by BofAML, Credit Suisse, Research Affiliates or their respective affiliates as to their legality or suitability. ProShares are not sponsored, endorsed or promoted by BofAML, Credit Suisse, Research Affiliates or their respective affiliates, and they make no representation regarding the advisability of investing in ProShares. THESE ENTITIES AND THEIR AFFILIATES MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO PROSHARES.
"ProFunds Group" includes ProFunds mutual funds and ProShares ETFs. ProFunds mutual funds are distributed by ProFunds Distributors, Inc. ProShares are distributed by SEI Investments Distribution Co., which is not affiliated with the funds’ advisors.