ProShares' New Ultra China Mutuals to Complement UltraShort ETF

Feb. 8.08 | About: ProShares UltraShort (FXP)

Here's something a little different: ProFunds has launched a mutual fund.

After building a lineup of some 58 "mutts" over nearly a decade, the Bethesda, Md.-based indexing innovator slowed to just two new mutual fund launches last year. That comes against a backdrop of heightened activity by its sister unit, ProShares Advisors, which has been developing and marketing new exchange-traded funds [ETFs].

Now, ProFunds has launched a pair of mutual funds aimed at China's once-booming stock market.

"ETFs have had tremendous growth," said Michael Sapir, ProShares' chief executive. "But obviously we don't think our mutual funds lineup is built out yet."

The UltraShort China ProFund [AMEX: UHPIX] seeks daily results that correspond to twice, or 200%, the inverse of the daily performance of the Bank of New York China Select ADR Index.

The fund has a minimum investment level of $15,000 for individuals and $5,000 for professionals.

Also just out is the UltraChina ProFund [AMEX: UGPIX]. It seeks to gain twice as much, or 200%, of the same Bank of New York benchmark.

Sapir says ProFunds decided to go with that particular index over others due to its exposure to stocks listed in the U.S. "It's an index that's made up of Depository Receipts," he added. "That eliminates certain obstacles and expenses connected to cross-border investing.

In a mutual fund structure, Sapir says, "it just worked better to have U.S.-traded instruments."

The company recently launched UltraShort FTSE/Xinhua China 25 ProShares (AMEX: FXP). It aims to earn a return equivalent to taking a 200% short position of its FTSE benchmark. It has been out for less than two months.

The double-short ETF has attracted more than $550 million in assets during that time. "That has been incredibly successful," Sapir said. "The market has slowed and many investors have expressed sentiment that there's a potential for a bubble."

He added that launching a mutual fund that shorts Chinese stocks doesn't preclude ProShares from coming out with an ETF along the same lines. "There's no intrinsic business reason for that decision to launch a double-short mutual fund," Sapir said. "It's not because we think that a Chinese leverage ETF wouldn't be interesting and well received."

In either form, he says the point is to offer more avenues for investors to play the Chinese equities market. "We know there are many investors concerned about a bubble in China," Sapir said. "These new funds give them the opportunity to hedge their exposure or turn any potential bubble into an opportunity."

ProFunds has been distributing mutual funds for more than a decade. Its family of mutual funds is now up to more than $6 billion in assets, Sapir says. That includes insurance accounts where the firm runs several annuity products.

The ProShares unit began about a year and a half ago. It now manages some 58 ETFs with total assets of around $12 billion.

"We'll continue to look at new products to accommodate both types of investors," Sapir said.

Written by Murray Coleman