Invesco PowerShares, the fourth largest US ETF issuer and a leading global provider of exchange traded funds, has announced plans to launch an actively managed fund, the PowerShares S&P 500 Downside Hedged Portfolio ETF (PHDG) this week.
The fund seeks to mitigate risk and volatility and provides investors broad US equity market exposure that hedges downside risk with cash positions and VIX futures.
PHDG aims to deliver positive total returns in rising or falling markets that are not directly correlated to the broad equity or fixed income market returns. The fund seeks to achieve this objective by using a rules-based and quantitative strategy that is designed to provide returns that follow the performance of the S&P 500 Dynamic VEQTOR Index.
The S&P 500 Dynamic VEQTOR Index is part of S&P’s strategy index series and dynamically allocates long-only exposures between the S&P 500, S&P VIX Short-term Futures Index and cash depending upon market conditions.
Investments in Chicago Board Options Exchange volatility Index (“VIX Index”) related instruments may include ETFs and exchange traded notes (ETNs) that are listed on a US securities exchange and that provide exposure to the VIX Index. The investment strategy is based on realized and implied volatility trends and allocation to the VIX Futures Index serves as an implied volatility hedge.
The fund will invest in money market instruments, cash and cash equivalents to provide liquidity, to collateralize its futures contracts or to track the underlying benchmark during times when the benchmark moves its entire allocation to cash.
During periods of low volatility, PHDG will invest a greater portion of the fund’s assets in equity securities. Similarly, during periods of increased volatility, a greater portion of assets will be invested in VIX related instruments.
Although the fund seeks returns comparable to the returns of the underlying index (S&P 500 Dynamic VEQTOR Index), it can vary exposure to any of the three components within the benchmark at any time. This dynamic strategy lowers volatility, reduces correlation and provides downside hedge in falling markets that reduces average risk, while participating on the potential upside.
PHDG has an annual expense ratio of 0.39 percent. This is a new kid on the block with no pricing history whatsoever. It will take some time to establish itself in the market place, and I will revisit PHDG at some time in the future.
Disclosure: No holdings