[This article appears in our February 2020 issue of ETF Report.]
ProShares was once focused on launching an extensive lineup of geared and leveraged ETFs that were among the first of their kind. However, those funds are mainly intended for short-term, tactical purposes. In recent years, the issuer has begun launching a lineup of funds designed for long-term investment, one of which is now its largest fund, the $6.5 billion ProShares S&P 500 Dividend Aristocrats ETF (NOBL). Here, ProShares Managing Director Steve Cohen discusses his firm’s evolution and where it’s headed.
What is ProShares’ driving philosophy?
At the highest level, what we’re trying to accomplish is to provide value-added products for investors and advisors of all kinds. We don’t see ourselves as a plain-vanilla shop or trying to compete with the “Big Three” [iShares, Vanguard, State Street]. We’re very content to look for the kinds of opportunities that are reflected in our products. We can add value in investor portfolios beyond
traditional simple beta.
How has your lineup evolved over the years?
We’ve got a rich history in offering what we call “geared products,” leveraged and inverse products. From day one, that was our growth engine. And it’s been a great story with solid, consistent growth across the product line.
About five years or so ago, we said that we really needed to diversify our product line and our investor base, and we set out on a mission to do just that. We launched several different suites of products that we would consider more buy-and-hold funds versus the geared business, which we see as more tactical tools. And it’s been a whirlwind over the last five years trying to build, in essence, almost a separate ETF business from what we had built before from scratch. That’s really been a big mission over the last five years.
ProShares has been around for a long time, and the ProShares S&P 500 Dividend Aristocrats ETF (NOBL) is now the biggest fund, usurping the largest of your leveraged and inverse funds.
That’s exactly right. [Last year was] a really gratifying one, because we started it with somewhere around $6 billion in those buy-and-hold products. We’re now approaching just shy of $10 billion. Granted, a lot of that has been NOBL, which is now over $6 billion. We continue to diversify that product line.
We’ve got the whole line of dividend growers—we now have eight of those. We just introduced two new ones in November: the ProShares S&P Technology Dividend Aristocrats ETF (TDV) and the ProShares Russell U.S. Dividend Growers ETF (TMDV). The ProShares Russell 2000 Dividend Growers ETF (SMDV) and the ProShares S&P MidCap 400 Dividend Aristocrats ETF (REGL) are both approaching $1 billion.
It’s certainly a story that plays well in an environment where we keep hitting market tops, and investors want to continue to add to equity markets but are certainly concerned about big dips or potential dips.
The selling proposition here is that these funds can perform well with potentially lower volatility and the whole ability to catch a lot of the gains on the up, but also not lose as much on the down—that up/down capture story has really played well this year.
For a larger view, please click on the image above.
Your geared funds were greeted with a lot of controversy when they first launched, but they do exactly what they’re supposed to do. How should investors view your leveraged and inverse products?
As you said, the products do exactly what they’re supposed to do. And we always say that an educated customer is our best investor.
At this point, investors understand how the products work, both for a day and over time. We consistently suggest monitoring the investment over time. Certainly, knowing what you’re buying is first. Second is monitoring your position and understanding where you’re at, at any particular moment—and then rebalancing if the fund is out of line with what you’re trying to accomplish.
It’s pretty basic. And we’ve also seen really good growth in that business. Our overall assets are up again [in 2019], by 24%.
For a larger view, please click on the image above.
What is your process for launching a fund? How do you decide what to roll out?
Most of the product development work over the last few years has been done in that buy-and-hold, nongeared space. We look at three things: the investment merit of a potential product. We look at the commercial merit. And then we look at just the feasibility of delivering that investment objective. I guess underneath the commercial merit, you might include: Are we offering something that’s unique and different to the marketplace?
Our goal is to try and push boundaries and create products that are value-add and not “me-too” products. A great example of that is the ProShares Pet Care ETF (PAWZ) that we developed and launched [in 2019] and that has had a nice consistent flow.
It’s got about $53 million, and it’s a fairly new fund. We’ve gotten tremendous attention paid to it. People can relate to the concept and understand how much money they’re spending on their pets and how that translates into investment opportunity. And we were able to deliver it in a way that I think is pretty powerful, focused on over 20 public companies that are in this space.
How do you see the market as having changed since ProShares first entered the ETF space?
Clearly, the single biggest thing is the level of competition in terms of sponsors, number of sponsors, as well as number of products. But obviously, we’ve got shelf-space issues now that didn’t exist back then. You used to put a product out, and basically it went up on every platform almost automatically. Now, getting a product into a distribution system is very difficult. That’s obviously a huge difference.
Other obvious ones are fee compression, distribution and competition. All of those have created an environment where you’d better feel really good about the products you have, and you’d better decide where you want to focus, because you can’t focus on everything.
What’s ahead for ProShares?
We like reinventing ourselves. We started as a mutual fund company. We reinvented ourselves in 2006 or so, and became an ETF company very quickly—and a top10 ETF company.
We reinvented ourselves again five years ago when we started to diversify the product line. That buy-and-hold business is now $9.8 billion—that’s a top 20 ETF company on its own. We’re not afraid. That’s our culture. We’re not afraid to challenge conventional thinking, but also challenge ourselves to say, where’s the next mountain?