ProShares Hedge Replication ETF (HDG)
Breaking down the barriers
Hedge Fund Exposure in a Flexible ETF Format
Fund SnapshotTicker Symbol: HDG
Intraday Ticker: HDG.IV
Bloomberg Index Symbol: MLEIFCTX
Expense Ratio: 1.87%
Net Expense Ratio: 0.95% *
Investment Objective: ProShares Hedge Replication ETF seeks investment results, before fees and expenses, that track the performance of the Merrill Lynch Factor Model — Exchange Series.
* With Contractual Waiver ending 9/30/17.
ProShares Hedge Replication ETF (HDG) seeks to generate the risk and return characteristics of a broad universe of hedge funds while avoiding or overcoming many of the challenges of investing in a hedge fund.
- The Appeal and Challenges of Hedge Fund Investing
- What Is Factor Replication?
- The Advantages of ProShares HDG
Hedge funds: The appeal… and the challenge
Many investors are aware of the risks of investing only in traditional asset classes like stocks and bonds. They may be seeking diversification through alternative investments like hedge funds.
- But hedge funds have been out of reach for many investors because they often restrict access, have high investment minimums, or may be closed to new investment.
- An approach known as hedge fund replication may provide an alternative to investing directly in a hedge fund—without those challenges.
What is factor replication?
Hedge fund replication is a quantitative, rules-based strategy that attempts to recreate the risk and return profile of a broad universe of hedge funds.
Factor replication is one type of replication approach:
- Determines combinations and weightings of financial market factors, such as index returns
- Seeks high correlation with hedge fund performance
Hedge fund returns are largely derived from exposure to market factors, according to academic research.
How Hedge Fund Replication Works
Investment processBroad index of hedge fund performance
HFRI, an index of hedge funds:
- Represents over 2,000 hedge funds and a variety of investing styles
- Was created by Hedge Fund Research, Inc., a global leader in the alternative investments industry
MLFM-ES, which targets a high correlation to HFRI:
- Aims to replicate the portion of hedge fund returns attributable to market exposure
- Updates factor weightings monthly using HFRI performance data
- Was established by Merrill Lynch, a pioneer in hedge fund replication
HDG seeks exposure to market factors underlying MLFM-ES:
- Obtains exposure through readily available, liquid and marketable securities or derivatives
- Invests in equities, ADRs, derivatives such as swaps, forwards and futures, and U.S. Treasury bills
- Does not invest directly in hedge funds
Advantages of HDG
Unlocks the potential of hedge funds
HDG may add diversification to a traditional portfolio of stocks and bonds.
Convenient, flexible access
The ETF is a way to access the risk/return characteristics of hedge fund investing, offering liquidity, transparency and cost effectiveness.
Complement to core holdings
HDG can serve as an important complement to core portfolio holdings.
There are no guarantees that the fund or its index will achieve intended objectives.
Derivatives used to seek long and short exposure may increase volatility and decrease performance under certain market conditions.
For more on risks, obtain a prospectus from your financial advisor or visit ProShares.com.