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ProShares, which has $58bn in assets under management, is the second most popular midsized ETF provider © Rafael Henrique/SOPA/Reuters

ProShares notched up record inflows despite providing some of the worst-performing index trackers in the industry in 2022, as investors chased high returns in the most volatile markets.

The ETF provider said it expected to set a new record for growth in 2022 with more than $17bn in net inflows. ProShares, which has $58bn in assets under management, is the second most popular midsized ETF provider after Dimensional, which had $22bn in inflows.

“ETFs are designed to give investors a benchmark return, and they are successful when they do that,” said Michael Sapir, chief executive of ProShares.

“No one criticises an S&P 500 fund when the S&P 500 is down 20 per cent and the fund is down 20 per cent,” Sapir said.

The ETF provider is best known for its leveraged and “short” ETFs, which use derivatives to allow investors to make leveraged bets on market moves or hedge against down markets.

In the autumn of 2021, ProShares boasted the most successful ETF in the history of the product. TQQQ, an ETF that amplified gains and losses in the Nasdaq 100 index by three, was up more than 20,000 per cent since 2010. Retail investors rushed to buy, pushing the TQQQ to the top of most-traded lists. Assets in the ETF rose fivefold during 2020 and 2021 to more than $22bn by 2022.

But the value of TQQQ halved in 2022 to $11.8bn. The ETF’s share price has dropped more than 76 per cent as the underlying tech-heavy index has taken a beating. But ProShares says its ETFs, for better or for worse, are doing exactly what they are supposed to do. Don’t hate the index tracker — hate the index, experts say.

The ETF provider is consistently a top buy for retail investors looking for easy exposure to volatile corners of the market. Despite the poor performance in some of its largest flagship products, inflows and trading volumes have been strong.

On Monday, the only share with more trading volume than TQQQ was Tesla, with SQQQ in third. A quarter of all trades in ETFs in the US were ProShares products, the most of any single provider, ProShares said.

Line chart of The triple levered ETF has tumbled in the last year showing TQQQ’s wild ride

Another ProShares ETF, which offers liquid exposure to bitcoin, was the fastest ETF to reach $1bn AUM after launching in October 2021, according to Morningstar. But BITO’s value has also plummeted 73 per cent as the cryptocurrency market tumbled, wiping out $1.3bn in investor cash since inception.

“We feel very good about BITO. It is designed to reflect the performance of bitcoin futures contracts, which it did, and it ended up very, very closely tracking the performance of spot bitcoin,” Sapir said.

The poor performance of some of the underlying indices of ProShares’ ETFs has come as rising interest rates has caused growth companies to contract. Inflation and various scandals have also weighed on digital assets. But for ProShares, that is the point.

“Their legacy core franchise relies on volatility,” said Ben Johnson, formerly director of ETF research and now head of client solutions at Morningstar. TQQQ is still ProShares’ biggest ETF by size.

ProShares also offers opposite versions of its worst-performing ETF products, which investors use to hedge the market, “like insurance”, Johnson said. ProShares’ third largest ETF, SQQQ, shorts the underlying Nasdaq 100 with triple leverage — and has had a bumper year. It also offers short and leveraged short exposure to the S&P 500.

Line chart of Crashing crypto market wipes out the underlying index ($mn) showing ProShares bitcoin ETF assets tumble

However, analysts said that leveraged ETFs were often popular with retail investors who could not access leverage or derivatives trading outright and might not understand the associated risks.

“That’s a traditional clientele for these sorts of products: individuals or intermediaries who are prohibited from obtaining leverage by other means,” Johnson said.

But wild price swings also help underpin the ETF providers’ popularity with retail punters. “For retail traders to be attracted to a stock, it has to grab their attention,” said Peng Cheng, an analyst at JPMorgan specialising in retail investors. “Their universe is not 5,000 stocks, it is stocks that get their attention: things that move a lot, things with high volatility. And leverage gets them that volatility.”

ProShares has tried to distance itself from its reputation as the pre-eminent provider of leveraged and inverse ETF products, which profit from declining value, by diversifying offerings into more conventional arenas. However, it has not been able to shake the fact that those products make up the majority of its business, analysts said.

Bar chart of The ETF provider is second best in class, despite poor index performance showing ProShares inflows remain strong

ProShares’ leveraged ETFs use derivatives to synthesise leverage across their underlying index, which can often result in higher management fees for investors — taking a bite out of potential returns. TQQQ has a gross expense ratio of 0.98 per cent, nearly five times the cost of the unleveraged QQQ ETF, which tracks the Nasdaq 100, of 0.2 per cent.

ProShares maintains that the product is for sophisticated investors and not intended to be bought and held. The broker offers ETFs that are unleveraged, or more typically found in an average portfolio.

“They’re not just a risk-on player in the ETF marketplace,” said Todd Rosenbluth, head of research at VettaFi. “Their products are designed for the more tactical, short-term-trading-oriented investor, as opposed to BlackRock or Vanguard and State Street, that are used as the core of a portfolio. This is for the tactical part of the portfolio.”

Volatility is likely to continue in 2023 and with it, ProShares’ popularity with bold traders eager to take big bets and willing to stomach big losses.

Johnson said that tracking volatile performance is not ProShares’ sole intention, it is what investors are looking for. “Those products are for making turbocharged directional bets.”

“Children shouldn’t juggle with chainsaws,” he added.

Resilient flows despite volatile performance
ETFPer cent
ProShares UltraShort Bloomberg Natrl Gas-93.77
ProShares UltraPro QQQ-76.99
ProShares Ultra Cloud Computing-73.96
ProShares UltraShort Oil & Gas-70.44
ProShares Ultra Semiconductors-64.92
ProShares Bitcoin Strategy ETF-63.68
ProShares UltraPro Russell2000-62.35
ProShares Ultra Technology-61.70
ProShares Ultra QQQ-58.08
ProShares UltraShort Bloomberg Crude Oil-56.68
ProShares UltraPro S&P500-56.09
ProShares Ultra Consumer Services-55.94
ProShares Ultra Nasdaq Cybersecurity-53.64
ProShares Ultra FTSE China 50-50.94
ProShares UltraPro MidCap400-50.02
ProShares Ultra Real Estate-48.83
ProShares Ultra 20+ Year Treasury-48.65
ProShares Online Retail ETF-48.14
ProShares Ultra Consumer Goods-44.64
ProShares Long Online/Short Stores ETF-44.51
ProShares Ultra Russell2000-43.35
ProShares Ultra MSCI Emerging Markets-43.08
ProShares Ultra Telecommunications-42.64
ProShares Big Data Refiners ETF-42.58
ProShares On-Demand ETF-41.74
ProShares Pet Care ETF-39.08
ProShares Ultra VIX Short-Term Futures-39.05
ProShares Ultra S&P500-38.38
ProShares Ultra MSCI Japan-37.55
ProShares Ultra FTSE Europe-36.91
ProShares Ultra SmallCap600-36.42
ProShares UltraShort MSCI Brazil Capped-36.03
ProShares Ultra MSCI EAFE-34.14
ProShares Ultra Financials-33.73
ProShares UltraPro Dow30-33.27
ProShares Ultra Industrials-33.25
ProShares Ultra MidCap400-32.37
ProShares Ultra Yen-32.33
ProShares Nanotechnology ETF-31.72
ProShares MSCI Trnsfmtnl Chngs ETF-29.10
ProShares Smart Materials ETF-28.96
ProShares Nasdaq-100 Drsy Wght Momt ETF-27.99
ProShares Ultra Nasdaq Biotechnology-26.81
ProShares Ultra 7-10 Year Treasury-26.34
ProShares Global Listed Private Equity-26.28
ProShares S&P Kensho Smart Factories ETF-24.72
ProShares MSCI Europe Dividend Gr ETF-24.64
ProShares UltraShort Silver-22.02
ProShares Ultra Basic Materials-21.86
ProShares MSCI EAFE Dividend Growers-21.31
ProShares Ultra High Yield-21.08
ProShares Ultra Dow30-20.30
ProShares S&P 500® ex-Health Care-20.22
ProShares S&P 500® ex-Energy-19.95
ProShares VIX Short-Term Futures-19.80
ProShares S&P 500® ex-Financials-18.31
ProShares MSCI Emerg Mkts Div Growers-17.91
ProShares Large Cap Core Plus-17.44
ProShares Ultra Euro-17.01
ProShares Ultra Health Care-15.92
ProShares S&PTech Div Arstcrts ETF-15.23
ProShares S&P 500® Bond ETF-14.35
ProShares S&P 500® ex-Technology-14.29
ProShares Ultra Silver-13.94
ProShares S&P Kensho Cleantech ETF-12.50
ProShares UltraShort Utilities-11.18
ProShares Ultra Gold-10.35
ProShares Hedge Replication-8.42
ProShares UltraShort FTSE China 50-8.25
ProShares Short VIX Short-Term Futures-7.44
ProShares Russell 2000 Dividend Growers-7.15
ProShares S&P 500 Dividend Aristocrats-6.71
ProShares Ultra MSCI Brazil Capped-6.52
ProShares Ultra Utilities-5.96
ProShares Russell US Dividend Grwr ETF-5.38
ProShares Merger-4.91
ProShares DJ Brookfield Global Infras-4.81
ProShares UltraShort Nasdaq Biotech-4.29
ProShares UltraShort Basic Materials-4.08
ProShares S&P MidCap 400 Dividend Arst-2.49
ProShares Investment Grade—Intr Rt Hdgd-1.65
ProShares High Yield—Interest Rate Hdgd-1.22
ProShares Equities for Rising Rates ETF0.19
ProShares UltraShort Gold1.04
ProShares VIX Mid-Term Futures1.39
ProShares UltraShort Health Care1.96
ProShares Inflation Expectations3.37
ProShares Decline of the Retl Store ETF5.20
ProShares UltraPro Short Dow305.77
ProShares Short Dow306.10
ProShares Short FTSE China 506.15
ProShares Short High Yield8.03
ProShares UltraShort Dow308.16
ProShares UltraPro Short MidCap4009.69
ProShares Short MidCap40010.54
ProShares Short Financials13.17
ProShares Short MSCI EAFE13.27
ProShares Short SmallCap60014.21
ProShares UltraShort MidCap40014.24
ProShares Short 7-10 Year Treasury14.82
ProShares UltraShort Euro15.95
ProShares UltraShort FTSE Europe17.40
ProShares Short S&P50017.42
ProShares Short Russell200018.10
ProShares K-1 Free Crude Oil Strategy19.05
ProShares UltraShort Industrials19.16
ProShares Short MSCI Emerging Markets20.59
ProShares UltraShort Financials20.73
ProShares UltraShort SmallCap60021.54
ProShares Ultra Bloomberg Crude Oil21.69
ProShares UltraShort MSCI EAFE23.30
ProShares UltraShort Semiconductors25.33
ProShares Short Real Estate27.80
ProShares UltraShort Russell200028.30
ProShares UltraPro Short Russell200029.20
ProShares UltraShort S&P50029.60
ProShares UltraShort 7-10 Year Treasury30.41
ProShares Short 20+ Year Treasury31.82
ProShares Short QQQ32.46
ProShares UltraShort MSCI Japan33.07
ProShares UltraPro Short S&P50034.93
ProShares Ultra Bloomberg Natural Gas35.61
ProShares UltraShort MSCI Emerging Mkts37.23
ProShares UltraShort Yen40.35
ProShares UltraShort Consumer Goods41.85
ProShares UltraShort Real Estate53.14
ProShares UltraShort Technology57.07
ProShares UltraShort QQQ57.62
ProShares UltraShort Consumer Services58.56
ProShares UltraShort 20+ Year Treasury66.91
ProShares UltraPro Short QQQ69.07
ProShares UltraPro Short 20+ Year Trs101.97
ProShares Ultra Oil & Gas108.15
2022 year-to-date performance through Dec 16 | Source: Morningstar Direct
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