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ProShares Re-Configures Its Managed Futures ETF Effort

The managed futures category is one of three liquid alternative categories in 2015 to experience net positive inflows over the course of the year (the other being multi-alternative funds and volatility funds). However, nearly all of the flow in the category is going to mutual funds rather than exchange traded funds, of which there are only four (soon to be three) in the managed futures space. However, this isn’t preventing ProShares from making its second attempt at having a successful product in the market. Back in October 2014, the firm launched its first managed futures ETF, the ProShares Managed Futures Strategy (NYSEARCA: FUTS ), which was structured as a commodities pool. As a result, the ETF issued shareholders a K-1 for tax reporting – not the most desirable feature for ETF investors. Just recently however, ProShares announced that it would be liquidating FUTS and that trading in the ETF will be halted prior to the market open on March 21. In its place, the firm has launched a new ETF: the ProShares Managed Futures Strategy ETF (FUT). “Managed futures strategies have the potential to deliver positive returns in both rising and falling markets,” said ProShares Advisors’ CEO Michael L. Sapir, in a recent statement announcing the launch of the new ETF. “With their low correlation to both stocks and bonds, managed futures strategies can help diversify a stock and bond portfolio.” What’s Different? There are two main differences between the new fund and the old fund. The new fund is structured as an open-ended mutual fund under the Investment Act of 1940, similar to a bulk of other ETFs. In fact, ETF.com notes that many fund companies have been shying away from managed futures funds structured as commodity pools, presumably due to their added tax complexity. This change means that the new fund will issue a 1099 rather than a K-1. That’s a big improvement for anyone looking to keep their tax filings simple (that’s on a relative basis!). The second difference is that the new fund is an actively managed fund, meaning that the advisor can actively manage positions in the portfolio and not be tied solely to what the underlying index is holding. Here again, this is a positive change that will give ProShares a bit of leeway to enhance returns and/or manage certain holdings in a way that will ideally be beneficial to shareholders. What’s the Same? Most significantly, the underlying index of the two funds is the same, which is the S&P Strategic Futures Index . This index, as described by ProShares, uses “an innovative risk-weighting methodology so that each commodity, currency, and fixed income position contributes an equal amount of estimated risk to the overall portfolio when it rebalances monthly.” Now, as an active ETF, the fund will have latitude to deviate from the index. In addition to the underlying index, the portfolio manager, Ryan Dofflemeyer, and the expense ratio, 0.75%, also remain the same. Other Managed Futures ETFs Two other managed futures ETFs are available for investors. The largest and oldest is the WisdomTree Managed Futures Strategy ETF (NYSEARCA: WDTI ) with an inception date of January 5, 2011 and just over $200 million in assets. The second oldest is the $12.3 million First Trust Morningstar Managed Futures Strategy Fund (NYSEARCA: FMF ), which was launched on August 1, 2013. Jason Seagraves contributed to this article.

Hit And Flop ETFs Of February

After a brutal sell-off in January and amid heightened uncertainty, the major U.S. bourses are on track to end the month of February in the green. Stocks advanced in the back-end of the month with two consecutive weeks of gains courtesy of the bargain hunting, a recovery in crude oil prices and abating fears of a recession in the United States. In particular, a slew of encouraging data pertaining to retail sales, consumer spending, producer prices, factory production and inflation points to regained momentum in the U.S. economy after a sluggish fourth quarter. Additionally, the second estimate of Q4 GDP data came in much higher than the initial estimate as the economy expanded at a faster rate of 1% annually than 0.7% reported by the Commerce Department in January. Further, hopes of stimulus from the central banks in Europe and Japan renewed confidence in global economic growth. However, concerns over corporate profits, global economic growth and uncertainty in the timing of next interest rate hike continued to weigh on stocks during the month. As a result, investors’ flight to safety in gold also continued with bouts of volatility. That being said, we have highlighted the three best- and worst-performing ETFs of February. Best ETFs iShares MSCI Global Gold Miners ETF (NYSEARCA: RING ) – Up 33.0% Global uncertainty and financial market instability have brought back the allure for metals, especially gold, boosting their demand. Acting as leveraged plays on underlying metal prices, metal miners tend to experience larger gains than their bullion cousins in the rising metal market. In fact, RING is the biggest winner, having surged nearly 33% in value. This fund follows the MSCI ACWI Select Gold Miners Investable Market Index and holds 30 securities in its portfolio. The product is heavily concentrated in the top three firms – Barrick Gold (NYSE: ABX ), Newmont Mining (NYSE: NEM ) and Goldcorp (NYSE: GG ) – which combine to make 29.5% of total assets. Canadian firms take the lion’s share at 51.2%, while South Africa (19.4%) and the U.S. (11.4%) round out the top three. RING is the cheapest choice in the gold mining space, charging just 0.39% in fees and expenses. The fund has been able to manage assets worth $78.9 million. Materials Select Sector SPDR ETF (NYSEARCA: XLB ) – Up 8.5% The material sector has been gaining strength, with robust performances in its chemical business as well as the metals & mining and steel industries. Growing automotive, a solid residential construction market and increasing production are expediting growth. That said, the most popular fund, XLB, with AUM of $2 billion, has gained 8.5% in February. It tracks the Materials Select Sector Index, charging investors 14 bps in fees per year. In total, the fund holds about 29 securities in its basket, with Dow Chemical (NYSE: DOW ) and DuPont (NYSE: DD ) taking the top two spots, with over 11% allocation each. In terms of industrial exposure, chemicals dominates the portfolio with three-fourth share, while containers & packaging and metals & mining round out the top three positions. The product has a Zacks ETF Rank of 4 or “Sell” rating and a Medium risk outlook. Deep Value ETF (NYSEARCA: DVP ) – Up 7.1% Value investing has been a safer option for investors in turbulent times, as these stocks are less susceptible to trending markets and exhibit lower volatility than their growth and blend counterparts. This fund tracks the TWM Deep Value Index, which provides an opportunity to invest in undervalued dividend-paying stocks within the S&P 500 index with solid balance sheets and strong earnings and free cash flow. Holding a small basket of 20 stocks, the fund is heavy on the top firms, with Exxon Mobil (NYSE: XOM ), Symantec Corp. (NASDAQ: SYMC ) and Newmont taking the largest allocation with a combined share of 23.3%. Consumer discretionary, energy and industrials are the top three sectors, with 15% allocation each. DVP is unpopular in the large cap value space, with AUM of $65.8 million, and is a high-cost choice, charging investors 80 bps in fees per year. It has gained 7.1% in February and has a Zacks ETF Rank of 2 or “Buy” rating. Worst ETFs First Trust ISE-Revere Natural Gas Index ETF (NYSEARCA: FCG ) – Down 18.8% Natural gas producers have been the biggest laggards as natural gas price dropped to the lowest level since 1999 on expanding supply and falling global demand. Notably, a mild winter in the U.S. and EU continues to push levels of demand down this month. Consequently, FCG, which offers exposure to U.S. stocks that derive a substantial portion of their revenues from the exploration and production of natural gas, is down 18.8% this month. The fund follows the ISE-REVERE Natural Gas Index and holds 29 stocks in its basket, which is well spread out across components, with none holding more than a 5.61% share. The fund has amassed $145.5 million in its asset base, while charging 60 bps in annual fees. FCG has a Zacks ETF Rank of 3 or “Hold” rating with a High risk outlook. Yorkville High Income MLP ETF (NYSEARCA: YMLP ) – Down 18.0% MLP is the corner that has received the worst blow from the oil price slide, with YMLP shedding the most – 18% this month. The fund follows the Solactive High Income MLP Index, charging 82 bps in annual fees. Holding 26 stocks in its basket, it is highly concentrated on the top 10 holdings at 57%, suggesting higher concentration risk. Oil, gas and consumable fuels take the top spot from a sector look at 66.4%, followed by energy equipment & services (20.9%) and gas utilities (10.4%). The product has managed $63.1 million in AUM. PowerShares Dynamic Energy Exploration & Production Portfolio ETF (NYSEARCA: PXE ) – Down 15.9% The energy sector remained under pressure from lower oil prices and unfavorable demand/supply imbalances. The recent jump in oil prices hasn’t been able to drive the sector, with PXE plunging nearly 16% in February. This fund tracks the Dynamic Energy Exploration and Production Intellidex index and evaluates stocks based on a various investment criteria, including price momentum, earnings momentum, quality, management action and value. It has 31 stocks in its basket, with none holding more than 7.38% of assets. It is a high-cost choice in the energy space, with 0.64% in expense ratio. The fund has AUM of $56.6 million and a Zacks ETF Rank of 5 or “Strong Sell” rating with a High risk outlook. 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