What is the ALTS ETF?

In the complex landscape of finance, Exchange-Traded Funds (ETFs) play a pivotal role in providing investors with diverse options to optimize their portfolios. One intriguing contender in this arena is the ALTS ETF, also known as the "Alternative ETFs" or simply the "ALTS." These financial instruments are designed to offer exposure to alternative asset classes and non-traditional investment strategies, making them a unique and potentially rewarding choice for investors seeking to diversify their holdings. In this article, we'll delve into the world of ALTS ETFs, exploring their overview, underlying strategies, and the potential they bring to the table.

ALTS ETF: Overview

The ALTS, or ALTS ETF, is a fund of ETFs that aims to track the performance of a specialized index. This ETF focuses on investing in "Underlying ETFs," which are sponsored by ProShare Advisors or its affiliates. The central objective of the ALTS ETF is to provide investors with a comprehensive solution for diversification by allocating primarily to alternative ETFs. These ETFs delve into non-traditional investment strategies and alternative asset classes, which can potentially offer uncorrelated returns to traditional equity and fixed income markets.

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ALTS ETF: Subtopic 1 - The ALTS ETF Strategy

The heart of the ALTS ETF's strategy lies in its selection of alternative ETFs. These ETFs follow distinct investment approaches, such as long/short, market neutral, managed futures, hedge fund replication, private equity, infrastructure, and inflation-related investments. Each of these strategies serves a unique purpose in adding diversification and potentially enhancing risk-adjusted returns. By combining these diverse strategies, the ALTS ETF aims to provide investors with exposure to a broad spectrum of potential alpha-generating sources.

ALTS ETF: Subtopic 2 - Underlying ETFs in Focus

The ALTS ETF's success depends on its allocation to specific Underlying ETFs. These funds are meticulously chosen based on a proprietary optimization model that calculates their allocation. This model considers the potential improvement in portfolio risk/return characteristics each Underlying ETF may offer to a conventional stock and bond portfolio. Additionally, the Index employs a tactical momentum signal, adjusting the allocation towards asset classes exhibiting positive relative trends over the past six months. As of a recent update in June 2021, the Underlying ETFs include ProShares Managed Futures Strategy ETF, ProShares Hedge Replication ETF, ProShares Merger ETF, and several others.

ALTS ETF: Subtopic 3 - Exploring Key Underlying ETFs

To better understand the diversity within the ALTS ETF, let's briefly examine some of its key Underlying ETFs:
ProShares Managed Futures Strategy ETF (FUT): This actively managed ETF aims to generate positive returns that aren't directly correlated with traditional markets. It uses a rules-based index focused on capturing trends in commodities, interest rates, and currencies.
ProShares Hedge Replication ETF (HDG): This ETF tracks the Merrill Lynch Factor Model, aiming to mirror the risk and return attributes of hedge funds. It targets a high correlation to the HFRI Fund Weighted Composite Index.
ProShares Merger ETF (MRGR): MRGR tracks the S&P Merger Arbitrage Index, offering exposure to a global merger arbitrage strategy. This strategy seeks to capture the spread between the stock price after a proposed acquisition is announced and the acquiring company's proposed value.
ProShares RAFI Long/Short (RALS): RALS seeks to track the FTSE RAFI US 1000 Long/Short Total Return Index, which leverages fundamental weighting to potentially outperform capitalization-weighted indices.
ProShares Global Listed Private Equity ETF (PEX): PEX tracks the LPX Direct Listed Private Equity Index, providing exposure to listed private equity companies with substantial direct private equity investments.
ProShares DJ Brookfield Global Infrastructure ETF (TOLZ): TOLZ tracks the Dow Jones Brookfield Global Infrastructure Composite Index, focusing on "pure-play" infrastructure companies.
ProShares Inflation Expectations ETF (RINF): RINF tracks the FTSE 30-Year TIPS Index, aiming to reflect inflation expectations by investing in Treasury Inflation-Protected Securities (TIPS).

Conclusion

In a world where diversification and exposure to uncorrelated assets are crucial for portfolio resilience, ALTS ETFs offer an innovative solution. These ETFs incorporate a broad range of alternative strategies, allowing investors to tap into opportunities that conventional investments might overlook. However, as with any investment, thorough research and a clear understanding of the underlying strategies are essential. Keep in mind that this article is not providing investment advisory services.

Disclaimer
This article is for informational purposes only and does not constitute investment advice. The information provided is based on sources deemed reliable, but its accuracy is not guaranteed. Investments in ETFs and other financial instruments carry risks, and individuals should conduct their own research and consult with a qualified financial advisor before making investment decisions. Not providing any investment advisory services.

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