Proshares: The Alternative ETF Company

25 Pages Posted: 30 May 2017

See all articles by Pedro Matos

Pedro Matos

University of Virginia - Darden School of Business; European Corporate Governance Institute (ECGI)

Anil Demir

University of Virginia - Darden School of Business

Abstract

In 2014, ProShares CEO Michael Sapir was meeting with Steve Cohen, managing director and head of the ProShares Strategy Group, whose agenda centered on the progress the firm was making in moving from its core offering of geared ETFs into establishing itself as the leading alternative ETF company. Since 2009, the firm had launched an array of ETFs and Sapir and Cohen were reviewing the current lineup, the assets under management (AUM), and net flows across ProShares' different ETF categories. Could ProShares get another $25 billion in AUM in these more strategic alternative ETFs?

Excerpt

UVA-F-1729

Nov. 24, 2015

ProShares: The Alternative ETF Company

In the summer of 2014, Michael Sapir, the CEO of ProShares, was reviewing the progress in the firm's lineup of exchange-traded funds (ETFs). With its headquarters located in Bethesda, Maryland, the firm was far from Wall Street and was a nontraditional financial company in many respects. Since its first ETF launch in 2006, the firm had successfully democratized access to short and leveraged strategies by offering them in ETFs to individual investors, advisers, and institutions. These “geared” ETFs aimed to deliver two or three times the daily return or the inverse of the return of their underlying indices covering all the major asset classes such as domestic equities (including different market caps, styles, or sectors), international equities, fixed income, commodities, and currencies. ProShares ranked in the top 10 of the largest ETF sponsors in the United States.

Sapir was meeting with Steve Cohen, managing director and head of the ProShares Strategy Group whose agenda centered on the progress the firm was making in moving from its core offering of geared ETFs into establishing itself as the leading alternative ETF company. Offering alternative ETFs was a broad concept that encompassed both nontraditional asset classes and investment strategies (Exhibit 1). Although these investments aimed to provide unique sources of risk and return, correlation benefits, and the potential for a better Sharpe ratio in a portfolio, they also might provide potential downside protection in falling markets.

These alternative strategies, used for some time by institutional investors, tended to have favorable long-term returns relative to risk. Many of these strategies used leverage, shorting, and derivatives. Since 2009, the firm had launched an array of ETFs that included alternative equity (specialty equity and dividend growers), fixed income strategies (hedged and global fixed income), tactical products to benefit from changes in inflation and market volatility (inflation and volatility), and ETFs that replicated hedge fund strategies (hedge strategies). (See Exhibit 2 for the full product list.) Sapir and Cohen were reviewing the current lineup of ETFs, the assets under management (AUM), and net flows across ProShares' different ETF categories (Exhibit 3). ProShares had become the world's largest manager of geared ETFs with more than $ 25billion in AUM (Exhibit 4). Could it get the next $ 25 billion in AUM in these more strategic alternative ETFs?

. . .

Keywords: geared EFTs, fixed income, investment strategies, downside protection, alternative strategies, shorting, derivatives

Suggested Citation

Matos, Pedro and Demir, Anil, Proshares: The Alternative ETF Company. Darden Case No. UVA-F-1729. Available at SSRN: https://ssrn.com/abstract=2974531

Pedro Matos (Contact Author)

University of Virginia - Darden School of Business ( email )

University of Virginia
P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434 243 8998 (Phone)
434 924 0726 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty-research/directory/pedro-matos/

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Anil Demir

University of Virginia - Darden School of Business

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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