ProShares Planning RAFI Long/Short ETF
Michael Johnston submits:Rob Arnott’s footprint on the ETF industry just might be getting a little bit bigger. ProShares, the Maryland-based leveraged and inverse ETF giant, recently filed details with the SEC on an ETF that would seek to track the performance of the RAFI US Equity Long/Short Index. That benchmark is based on a methodology devised by Arnott’s firm, Research Affiliates, that more and more investors are embracing as an alternative to traditional market cap weighting. PowerShares currently offers a handful of equity ETFs linked to RAFI indexes, and earlier this year swapped out the index on its high yield bond ETF (PHB) in favor of a RAFI index. Steering clear of market capitalization, the RAFI methodology uses four “fundamental” metrics to determine a company’s size: sales, cash flow, dividends, and book value. Determining the holdings of the index underlying the proposed long/short ETF would require a calculation of both RAFI weight and capitalization weight–the weighting each stock would receive in a cap-weighted index. The index would establish long positions in the stocks with the largest RAFI weight compared to capitalization weight, while shorting those with the smallest RAFI weights relative to their capitalization weights.Complete Story »
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