Van Eck Plans Long/Short ETFs
February 26, 2013
Van Eck, the New York-based money management firm behind the Market Vectors ETFs, filed paperwork with regulators requesting permission to launch long/short ETFs—strategies that the firm could opt to self-index.
The latest filing, which notes that the exemptive relief Van Eck seeks is similar to that granted to firms like Fidelity and FactorShares in the past, opens the door for Van Eck to create a “master-feeder” structure, whereby ETFs would invest solely in a “master fund” portfolio.
That portfolio, in turn, could serve as the basis for other ETFs as well as other investment vehicles, such as traditional mutual funds. The approach seems similar to what Vanguard does, whereby Vanguard ETFs exist as share classes of its existing index funds. Vanguard has a patent on its “share class” structure.
But the filing also details plans for long/short and 130/30 funds comprising exposure to domestic and foreign equities as well as fixed-income securities, the first being the Market Vectors U.S. Treasury-Hedged High Yield Bond Index ETF (NYSEArca: THHY).
THHY is a long/short strategy that will invest in dollar-denominated, below-investment-grade corporate bonds, while shorting Treasury bonds and notes to hedge against interest rates. The ETF had its original launch date of Feb. 20 postponed indefinitely, at which time the company had no comment on the delay.
The new offerings, targeting institutional and retail investors alike, represent yet another way ETF sponsors are finding to meet investor demand for income while minimizing exposure to interest rate risk at a time when rates remain pinned near zero.
Both the long/short and 130/30 indexes will employ a rules-based approach to determine component securities—which could be all domestic, all foreign or a mix of both—and their respective weightings, the company said in the filing.
As much as 20 percent of the planned ETFs could be invested in derivatives such as swap contracts, options and index futures—instruments not in the funds’ underlying indexes, the filing said.
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