ProShares launches Investment Grade - Interest Rate Hedged fund

By Toni Weeks

San Luis Obispo, Calif., Nov. 7 - ProShares announced it has launched the ProShares Investment Grade - Interest Rate Hedged fund, the first investment-grade bond exchange-traded fund in the United States that provides a built-in hedge against rising interest rates.

The new ETF targets a duration - a measure of interest-rate sensitivity - of zero by shorting Treasury futures.

"Investors have been fleeing long-term bond funds as concerns grow over losses that might result from rising interest rates," the chairman and chief executive officer of ProShare Advisors LLC, Michael Sapir, said in a press release. "While many investors have moved to shorter-duration bond funds to lessen the impact of rising rates, they remain exposed to some interest-rate risk."

This is the second interest-rate hedged bond ETF from ProShares, which launched the ProShares High Yield - Interest Rate Hedged (Symbol: HYHG) earlier this year. That fund targets a duration of zero on a diversified portfolio of high-yield bonds.

Each fund tracks an index from Citi Fixed Income Indices.

As previously noted, the new investment-grade fund seeks investment results, before fees and expenses, that track the performance of the Citi Corporate Investment Grade (Treasury Rate-Hedged) index.

The fund is comprised of (a) long positions in dollar-denominated investment-grade corporate bonds issued by both U.S. and foreign domiciled companies and (b) short positions in U.S. Treasury notes or bonds of, in aggregate, approximate equivalent duration to the investment-grade bonds.

Under normal conditions, the fund invests at least 80% of its total assets in component investment-grade securities of the index.

By taking short Treasury security positions, the index seeks to mitigate the potential negative impact of rising Treasury interest rates on the performance of investment-grade bonds, conversely limiting the potential positive impact of falling interest rates. The short positions are not intended to mitigate other factors influencing the price of investment-grade bonds, such as credit risk, which may have a greater impact than rising or falling interest rates.

The long investment-grade bond positions in the index are designed to represent the more liquid universe of investment-grade bonds offered within the United States.

Jeffrey Ploshnick will be the portfolio manager.

The ticker symbol is "IGHG."

The investment adviser, Bethesda, Md.-based ProShares Advisors, is limiting total annual fund operating expenses to 0.3% through Sept. 30, 2015.

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