ProShares, a premier provider of alternative exchange traded funds (ETFs), today announced the launch of ProShares High Yield—Interest Rate Hedged (BATS: HYHG), a new high yield bond ETF that uses Treasury futures to provide a built-in hedge against rising interest rates.
The value of high yield bonds—like that of all bonds—can be negatively affected by rising rates. HYHG maintains short positions in 2-, 5- and 10-year U.S. Treasury futures contracts to hedge its portfolio against possible rate increases.
“We believe that many investors in high yield bond funds may be focused on credit risk but overlook the risk presented by rising rates. When rates go up, they could be in for an unpleasant surprise,” said Michael Sapir, Chairman and CEO of ProShare Advisors LLC. “HYHG provides the opportunity to invest in this attractive asset class with less interest rate sensitivity than alternative solutions, including short duration high yield bond funds.”
About the Citi High Yield (Treasury Rate-Hedged) Index
HYHG seeks to track the performance of the Citi High Yield (Treasury Rate-Hedged) Index. The index seeks to provide diversified exposure to a liquid portfolio of high yield bonds while seeking to mitigate the impact of interest rate movements. The bonds included are U.S. dollar denominated high yield corporate bonds issued by companies based in the United States or Canada. To be included in the index, bonds must have a minimum issue size of $1 billion USD, be issued within the past five years and have at least one year remaining to maturity. No more than two issues from an issuer are allowed, and no more than 2% of the index is allocated to a single issuer.
The interest rate hedge included in the index is composed of short positions in Treasury securities. The hedge is designed to have sensitivity to interest rate changes approximately equivalent to the long high yield portion of the index. The index does not attempt to mitigate other factors influencing the price of high yield bonds, such as credit risk, which may have a greater impact on high yield bond prices than changes in interest rates.
Offering the nation's largest lineup of alternative ETFs, ProShares helps investors to go beyond the limitations of conventional investing and face today’s market challenges. Each ProShares ETF provides access to an alternative investment strategy delivered with the liquidity, transparency and cost effectiveness of an ETF. ProShares' lineup of 141 ETFs includes Global Fixed Income, Hedge Strategies, Geared (leveraged and inverse), and Inflation and Volatility ETFs.
ProShares has the largest lineup of alternative ETFs in the United States according to Financial Research Corporation ("FRC"), based on analysis of all the known alternative ETF providers (as defined by FRC) by their number of funds and assets (as of 3/31/2013).
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 advisor or broker/dealer representative or visit ProShares.com.
Investing involves risk, including the possible loss of principal. ProShares are non-diversified and each entails certain risks, which may include risk associated with the use of derivatives (swap agreements, futures contracts and similar instruments), imperfect benchmark correlation, and market price variance, all of which can increase volatility and decrease performance. Bonds will generally decrease in value as interest rates rise. High yield bonds may involve greater levels of credit, liquidity and valuation risk than for higher-rated instruments. Short positions lose value as security prices increase. The index does not attempt to mitigate factors other than rising rates that impact the price and yield of corporate bonds, such as changes to the market’s perceived underlying credit risk of the corporate entity. ProShares are not suitable for all investors. There is no guarantee any ProShares ETF will achieve its investment objective.
HYHG seeks to hedge high yield bonds against the potential negative impact of rising Treasury interest rates by taking short positions in U.S. Treasury futures. No hedge is perfect, and there is no guarantee the short positions will completely eliminate interest rate risk. Investors may be better off in a long-only high yield investment when interest rates fall than investing in HYHG, where hedging may limit potential gains or increase losses. Performance could be particularly poor during risk-averse, flight-to-quality environments when high yield bonds commonly decline in value. HYHG may be more volatile than long-only high yield bond investments. HYHG may contain a significant allocation to callable high yield bonds, which are subject to prepayment and other risks that could result in losses for the fund. There is no guarantee the fund will have positive returns.
Narrowly focused investments typically exhibit higher volatility.
“CITI” is a trademark and service mark of Citigroup Inc. or its affiliates, is used and registered throughout the world, and has been licensed for use by ProShares. ProShares ETFs based on the "Citi High Yield (Treasury Rate-Hedged) Index” are not sponsored, endorsed, sold, or promoted by Citigroup Index LLC (“Citi Index”) or its affiliates (collectively, “Citigroup”), and they make no representation regarding the advisability of investing in ProShares ETFs. CITI INDEX MAKES NO EXPRESS OR IMPLIED WARRANTIES OF ANY KIND, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall Citigroup be liable for any direct, indirect, special or consequential damages in connection with any use of the “Citi High Yield (Treasury Rate-Hedged) Index.”
ProShares are distributed by SEI Investments Distribution Co., which is not affiliated with the funds’ advisor.