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Volatility returned to Wall Street as the FOMC meeting earlier in the week sparked waves of worry across the market. Investors have been taking profits from virtually every asset class after the Fed gave no hints that it would look to implement another round of quantitative easing after the current stimulus program expires [see 3 ETFs For The End Of Operation Twist]. Nonetheless, the product development front has been steaming with activity; iShares expanded its bond ETF lineup with several high yield funds this week while ProShares has laid the groundwork for two alternative ETFs.

Maryland-based ProShares has filed plans with the SEC to bring to market two ETFs focusing on alternative investment strategies [see SEC Filing]:

  • ProShares Merger Arbitrage: This ETF will provide exposure to a merger arbitrage strategy by capturing the spread, if any, between the price at which the stock of a company trades after a proposed acquisition and the price that the acquiring company has proposed to pay for the given stock. The underlying index uses a quantitative methodology to track a dynamic basket of securities trading in global markets, including the U.S., generally representing long positions in certain target securities, and short positions in related securities in order to provide exposure to the merger arbitrage strategy.
  • ProShares Listed Private Equity: This ETF tracks the performance of leading publicly listed companies in the private equity space. The investable universe includes all publicly listed companies that are engaged in the private equity business, excluding real estate income companies and property trusts. The underlying index is market cap-weighted and is re-balanced semi-annually; furthermore, this ETF will use liquidity and volume criteria to narrow down its basket of holdings [see also Cheapskate Hedge Fund ETFdb Portfolio].

ProShares did not disclose trading tickers or expense information in the filing.

Alternative ETPs In Focus

The evolution of the ETF industry continues to bring forth strategies to mainstream investors that were previously too costly and/or complex to implement individually. The proposed ProShares products profiled above will likely face some stiff competition from more established offerings in the respective categories. Currently, the biggest and most popular merger arbitrage product is CSMA; this ETN has attracted just over $91 million in assets under management since launching in late-2010.

Within the private equity category, the competition is a bit less stiff, seeing as how UBS is currently the only issuer that offers such exposure. The E-TRACS Wells Fargo Business Development Company Index ETN (BDCS) offers access to a basket of business development companies which hold investments in hundreds of businesses, allowing investors to tap into the private equity asset class which has been historically reserved for wealthier, more sophisticated investors.

Disclosure: No positions at time of writing.

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Source: ProShares Files For Merger-Arbitrage And Private Equity ETFs