Invesco PowerShares, a leading global provider of exchange-traded funds (ETFs), has unveiled plans to launch the actively managed PowerShares S&P 500 Downside Hedged Portfolio ETF (PHDG) on the NYSE Arca later this week.
The new PowerShares product aims to deliver positive total returns in rising or falling markets that are not directly correlated to broad equity or fixed income market returns.
The new ETF will be a liquid alternative solution providing investors broad US equity market exposure with a downside hedge by dynamically allocating to VIX futures and cash depending on market volatility trends.
The fund aims to deliver positive total returns in rising or falling markets that are not directly correlated to broad equity or fixed income market returns. It seeks to achieve this objective objective by using a quantitative, rules-based strategy designed to provide returns that correspond to the performance of the S&P 500 Dynamic VEQTOR Index.
The S&P 500 Dynamic VEQTOR Index, part of S&P’s strategy index series, dynamically allocates long-only exposure between the S&P 500, the S&P VIX Short-Term Futures Index, and cash in order to measure broad equity market exposure with an implied volatility hedge. The index allocates between equity and volatility based on the combination of realised and implied volatility trends.
Ben Fulton, Invesco PowerShares managing director of global ETFs, said: “Today, advisors and their clients are just as interested in protecting their assets as they are in generating positive returns. The PowerShares S&P 500 Downside Hedged Portfolio (PHDG) will expand our range of liquid alternative strategies, and underscores our commitment to provide groundbreaking ETFs that advisors and investors can utilize to reduce correlation, lower volatility, and serve as a downside hedge in falling markets.”
Lorraine Wang, Invesco PowerShares senior vice president of new product development, added: “Unlike many alternative funds that seek to mitigate volatility by going long and short at the same time, PHDG will use a rules-based approach to dynamically shift its exposure among the S&P 500 Index, VIX futures and cash, depending on market volatility. The overall effect of the liquid alternative strategy is a portfolio with potentially below-average risk that may rise in down markets while potentially participating on the upside.”
PHDG is anticipated to make its debut on 6 December. It will have an expense ratio of 0.39%.
The S&P 500 Dynamic VEQTOR Index, PHDG’s benchmark, is already accessible to investors via the Barclays ETN+ S&P VEQTOR ETN (VQT) listed on the NYSE Arca. This exchange-traded note launched in September 2010 and currently has assets of $344m. However, this product has an expense ratio of 0.95% (compared to PowerShares’ 0.39%) and, as an unsecured debt obligation, is exposed to the credit risk of its issuer, Barclays Bank PLC.