ProShares, the Maryland-based exchange-traded fund issuer known for its range of inverse and leveraged exchange-traded funds, expanded its offering of alternative investment products recently with the launch of the ProShares Managed Futures Strategy (FUTS).
Managed futures investment strategy involves investing in futures contracts across asset classes such as commodities, currencies and fixed income instruments. Investing in future contracts is a widely followed hedging strategy because it helps mitigate portfolio risks in a way that is not possible in traditional spot markets. Because of the negative correlation between cash and futures contracts, introduction of futures in a portfolio reduces volatility significantly.
FUTS tracks the S&P Strategic Futures Index, a rules-based benchmark that uses a risk parity weighting methodology. The index is composed of 24 risk-weighted futures contracts in 16 different commodity-futures and eight financial-futures contracts. The index takes long or short positions in futures after comparing current prices of each future contract with a seven-month exponential average.
The weight of each component is evaluated every month and positions are taken based on a proprietary weighting methodology that ensures each futures contract contribute the same level of risk to the underlying index. In addition, the index implements a rolling strategy in certain commodities to minimize the effects of contango.
FUTS held short positions in wheat, corn, soybean, coffee, sugar, lean hogs, heating oil, unleaded gasoline among others, while long positions included cocoa and live cattle. The fund’s short currency holdings include Australian dollar, British pound, Canadian dollar, the euro, the Japanese yen and the Swiss franc.
Investors looking to enhance risk-adjusted returns on their traditional portfolios of stocks and bonds may consider exposure in FUTS since managed-futures products tend to perform well irrespective of the economy’s strength or market direction.
The fund has an annual expense ratio of 0.75 percent, excluding brokerage commissions and related fees.
Disclosure: No holdings