Let’s Wrap: ProShares CEO Michael Sapir Talks Expanding Beyond ETFs

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A little leverage can go a long way.

ProShares formed in 2006 and quickly became a pioneer in the ETF space, launching the first US-listed leveraged and inverse funds. But the issuer — which surpassed $100 billion in assets under management last year — has steadily expanded beyond them. The firm has moved into crypto, money markets and autocallables, among other areas. Now, it is taking an even bigger step beyond the ETF wrapper.

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Earlier this month, it announced that it is building out active-investment strategies focused on areas including fixed income and private markets, with plans to launch a lineup of interval funds and extend its reach to investors, both institutional and individual. “ETFs are great delivery vehicles for a lot of exposures and strategies, but not the best for others,” CEO Michael Sapir said.

Advisor Upside spoke with Sapir this week about ProShares’ longevity in the ETF industry, portfolio construction, the evolution of ETFs and why the fund structure has become synonymous with investment innovation.

ProShares started two decades ago. What lessons have you learned since then? And what have been the most significant changes in the ETF landscape?

Being in the middle of an ETF revolution, what we saw at the beginning was that ETFs were a specialty product, the spice or the exploration part of a portfolio. But since 2006, ETFs have become the primary way many investors and advisors build their portfolios. It’s been a huge shift from an ancillary product some people use to the principal way advisors get their exposures and strategies. It’s probably the biggest shift in investing in the last 100 years.

We’ve been in this area of asset management for a long time, and every time someone says, “Everything an issuer can do with an ETF has been done,” someone comes along and proves them wrong. Right now, there are a lot of interesting strategies using options and derivatives to deliver certain results for investors. The ETF keeps finding ways to democratize investing, finding strategies that have historically only been available to a certain class of clients and opening them up to other investors.

How do leveraged and inverse funds fit best into a portfolio?

There’s the impression that people are buying and selling these within just a few hours, and that’s the only way they use them. There’s limited recognition of other ways they deploy leveraged and inverse funds.

There’s a lot of academic support for using leverage while you’re young and have a longer time horizon. You can take more risks while you’re younger. But then some strategies are quite conservative. Investors will use inverse funds to help protect or hedge their portfolios. There’s not one best use case for them. It’s more like a Swiss Army knife, where they’re tools that can be used in a variety of ways.

The need to be educated on what you’re buying or considering buying is becoming more and more important with the great variety of opportunities that are now in the marketplace. It’s become more important for advisors to do their homework.

Outside of adding ETF share classes, are mutual funds struggling with innovation?

The ETF has become synonymous with innovation in investors’ and advisors’ minds, whereas mutual funds feel like old technology. I think a great number of investors, especially younger investors, don’t even think about mutual funds. They may have heard of them, but they don’t really know what they are. They think of mutual funds as something their grandfather may have invested in. When we started, a lot of advisors couldn’t even spell ETF. The default was mutual funds, but now the tables have turned.

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