ProShares [profile] just launched its second pair of of exchange-traded funds that offer
leveraged exposure to "breakeven inflation" indexes. On Thursday the Bethesda, Maryland-based ETF provider unveiledUltraPro 10 Year TIPS/TSY Spread (UNIF) and UltraPro Short 10 Year TIPS/TSY Spread (SINF) on the NYSE [press release].
UINF targets providing three times the daily return of the Dow Jones Credit Suisse 10-Year Inflation Breakeven Index, while SINF aims for three times the inverse of the index's daily returns.
"Now, for the first time, investors can try to take advantage of
swings in 10 year inflation expectations with an ETF," Michael Sapir, chairman and CEO of ProShare Advisors.
ProShares launched what it claims are the first breakeven inflation ETFs, based on a 30-year inflation index, last month [see MFWire.com, 1/17/2012].
Company Press Release
Bethesda, MD, February 9, 2012—ProShares, the nation's fourth most successful exchange traded fund (ETF) company,1 today announced the launch of ProShares UltraPro 10 Year TIPS/TSY Spread (NYSE: UINF) and ProShares UltraPro Short 10 Year TIPS/TSY Spread (NYSE: SINF), the first ETFs linked to 10 year breakeven inflation. Breakeven inflation (BEI) is a widely followed measure of inflation expectations.2
UINF seeks to provide 3x the daily performance of the Dow Jones Credit Suisse 10-Year Inflation Breakeven Index, before fees and expenses. SINF seeks to provide -3x the daily performance of the Dow Jones Credit Suisse 10-Year Inflation Breakeven Index, before fees and expenses. The ETFs list on NYSE Arca today.
"Many investors carefully watch 10 year breakeven inflation but have not had access to a liquid and transparent way to act on their views," said Michael L. Sapir, Chairman and CEO of ProShare Advisors LLC, ProShares' investment advisor. "Now, for the first time, investors can try to take advantage of swings in 10 year inflation expectations with an ETF."
Historically the volatility of 10 year BEI has been relatively low. Magnifying the daily movements of 10 year BEI by 3x or -3x over the past five years results in annualized volatility roughly comparable to that of the S&P 500.3
The launch of UINF and SINF follows ProShares' launch last month of RINF and FINF, the first 30 year BEI ETFs.
About Breakeven Inflation and UINF's and SINF's Benchmark
Breakeven inflation aims to isolate the market's expectation of inflation implied by the difference in yields between Treasury Inflation Protected Securities (TIPS) and Treasury bonds. The Dow Jones Credit Suisse 10-Year Inflation Breakeven Index tracks the returns of a long position in 10-year TIPS and a short position in Treasury bonds.4,5
ProShares is the country's fourth most successful exchange traded fund (ETF) company,1 with 131 funds and nearly $23 billion in assets.6 ProShares' lineup includes the largest family of geared (leveraged and inverse) ETFs.7 ProShare Advisors and ProShare Capital Management are affiliated with ProFund Advisors, which was founded in 1997. Together, they manage more than $26 billion in ETF and mutual fund assets.6
1 Source: Financial Research Corporation, based on analysis of organic net sales of U.S. exchange traded products (as of 6/30/2011). Includes products launched by their current management company; excludes products acquired through purchase or merger.
2 The spread difference in yield between Treasurys and TIPS (Treasury yield minus TIPS yield) is commonly referred to as "breakeven inflation" (BEI) or the "breakeven inflation rate" and is considered to be one measure of the market’s expectation for inflation over a defined period of time.
3 As measured by the Barclays Capital 10 year breakeven inflation index and S&P 500 from 12/31/06 to 12/31/11. For this period, the annualized volatility of daily returns of 3x or -3x the Barclays Capital 10 year breakeven inflation index was 20.8% compared to 26.6% for the S&P 500.
4 Treasury bonds with the closest maturity to the 10-year TIPS.
5 The index is designed to be a measure of the market's annualized inflation expectations in the United States over the next 10 years.
6 Assets as of 12/31/2011.
7 Source: Lipper, based on a worldwide analysis of all known providers of funds in these categories. The analysis covered ETFs and ETNs by the number of funds and assets (as of 6/30/2011).
UINF and SINF seek returns that are 3x or -3x the return of an index or other benchmark (target) for a single day, as measured from one NAV calculation to the next. Due to the compounding of daily returns, ProShares' returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period. These effects may be more pronounced in funds with larger or inverse multiples and in funds with volatile benchmarks. Investors should monitor their holdings consistent with their strategies, as frequently as daily.
Unlike many traditional bond funds, UINF and SINF are not designed to provide steady income. The level of the index (and these funds) will fluctuate based on changes in the price of the underlying bonds, not their yields. The returns of these funds will be more directly linked to percentage changes in the index than percentage changes in breakeven inflation ("BEI"). The index is not designed to measure the realized rate of inflation, nor does it seek to replicate the returns of any index or measure of actual consumer price levels. Additional factors besides inflation expectations, such as liquidity and risk premiums, can materially affect BEI levels. The index is a measure of 10 year "on-the-run" BEI.
Investing involves risk, including the possible loss of principal. These Funds are non-diversified and entail certain risks, including risk associated with the use of derivatives (swap agreements, futures contracts and similar instruments), imperfect benchmark correlation, and market price variance, all of which can increase volatility and decrease performance. Short ProShares should lose money when their benchmarks or indexes rise. Carefully consider the investment objectives, risks, charges and expenses of ProShares before investing. This and other information can be found in their summary and full prospectuses. Read them carefully before investing. Obtain them from your financial adviser or broker/dealer representative or by visiting ProShares.com. There is no guarantee any ProShares ETF will achieve its investment objective.
The "Dow Jones Credit Suisse 10-Year Inflation Breakeven Index" and the "Dow Jones Credit Suisse 30-Year Inflation Breakeven Index" are joint products of Dow Jones Indexes, the marketing name and a licensed trademark of CME Group Index Services LLC ("CME Indexes"), and Credit Suisse Securities (USA) LLC ("Credit Suisse"). "Dow Jones®" "DJ," "Dow Jones Indexes," "Credit Suisse," "Dow Jones Credit Suisse 10-Year Inflation Breakeven Index," and "Dow Jones Credit Suisse 30-Year Inflation Breakeven Index" are service marks of Dow Jones Trademark Holdings, LLC ("Dow Jones") or Credit Suisse, as the case may be, have been licensed to CME Indexes and sublicensed to ProShares. ProShares have not been passed on by these entities as to their legality or suitability. ProShares based on the Dow Jones Credit Suisse 10-Year Inflation Breakeven Index or the Dow Jones Credit Suisse 30-Year Inflation Breakeven Index are not sponsored, endorsed, sold or promoted by Dow Jones, Credit Suisse, CME Indexes or any of their affiliates. Dow Jones, Credit Suisse, CME Indexes and their affiliates make no representation regarding the advisability of investing in ProShares. THESE ENTITIES AND THEIR AFFILIATES MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO PROSHARES.
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