Eric Dutram: VelocityShares initially sought to shake up the broad exchange-traded market with its innovative lineup of VIX-focused ETNs. The company soon branched out into various metal and energy centric products as well, although it doesn’t appear that this is the end for the upstart by any means.
Instead, VelocityShares, via a couple SEC filings, looks to expand its product lineup beyond its ETNs and into the ETF world. In the filings, the company revealed plans for five ETFs in total, two that look to target the large cap American market with lower risk, and then three focused in on various segments of the emerging market world via depository receipts.
The new additions, if ever approved by the SEC, will expand the company’s lineup from 22 to 27 funds and will also mark the first forays of the firm into the equity world. Given this, the potential products could be interesting additions to the lineup and may also be somewhat novel funds in the broader ETF space as well.
In light of this, we have highlighted some of the key details from the filings that investors should be aware of at this time. While all the details were not yet available—ticker symbols and expenses ratios were not in the filings at this time—we discuss some of the top points from these still-in-registration funds below:
VelocityShares Emerging Markets DR ETF
This proposed product looks to track the BNY Mellon Emerging Markets DR Index, a benchmark of depository receipts of companies in emerging markets. The underlying index is focused on shares in Brazil (21%), Russia (17.5%), and China (14.2%), although it also includes a smattering of other nations as well (readGet True Emerging Market Exposure With These Three ETFs).
VelocityShares Russia Select DR ETF
This still-in-registration fund looks to track the BNY Mellon Russia Select DR Index, a benchmark of ADRs and GDRs of companies located in Russia. Seemingly, this fund will have a heavy focus on the energy industry as this constitutes a huge chunk of Russia’s economic output and especially its publically traded firms.
VelocityShares Emerging Asia DR ETF
This product looks to give investors a new way to play Asian markets by tracking the BNY Mellon Emerging Market Asia DR Index. This benchmark looks to roughly have about 30% in both China and South Korea, and then 21.7% in Taiwan, and 14.4% in India to round out the top four (see Asia Ex-Japan ETF Investing 101).
VelocityShares Tail Risk Hedged Large Cap ETF
This proposed ETF looks to follow the VelocityShares Tail Risk Hedged Large Cap index, which looks to follow in the trend of offering investors large cap exposure with less levels of risk. The fund hopes to do this by allocating 85% of the portfolio to three large cap ETFs (SPY, VOO, and IVV) while putting the remaining 15% in two ‘geared’ VIX-focused ETFs (NYSEARCA:UVXY) and (NYSEARCA:SVXY).
VelocityShares Volatility Hedged Large Cap ETF
This fund looks to follow a similar strategy to the previous ETF, except it will target the VelocityShares Volatility Hedged Large Cap Index. This invests in the same five ETFs as its counterpart above, but it does so in a different proportion with this ETF allocating 1/3 to UVXY and 2/3 to SVXY (of the 15% total volatility allocation) compared to a 45/55 breakdown for the previous product (readThree Defensive ETFs for a Bear Market).
As of right now, it is hard to say how popular or competitive these proposed ETFs will be when compared to the broad ETF world. The emerging market focused funds are particularly interesting as the space could definitely afford to have a few more ETFs in it, although it remains to be seen how different VelocityShares’ exposure to these key regions is.
The volatility hedged funds, on the other hand, could see some competition from a few products already on the market from a number of issuers. These funds include First Trust’s (NYSEARCA:VIXH), Barclays VEQTOR ETN (NYSEARCA:VQT), and a few ‘volatility response shares’ from Direxion such as (NYSEARCA:VSPR) and (NYSEARCA:VSPY).
While many of these funds are new, most have failed to attract a decent following, at least so far. In fact, only VQT has managed to attract a good deal of assets, coming in at just over $360 million in AUM (read Guide to the 25 Most Liquid ETFs).
Given this as well as the uncertainty over emerging markets, it remains to be seen if VelocityShares will see the same level of interest as it has seen in some of its leveraged and inverse ETNs already on the market. Either way, should the firm manage to pass SEC scrutiny for these five funds, they could offer up some interesting exposure that some investors may want to take a closer look at should they not feel that the current options in the market meet their portfolio’s needs.
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