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Bull, Bear, and Beyond

The Team to Beat

Bull, Bear, and Beyond - January 18, 2007


The ProFunds Group have been at the forefront of specialized long, short, and leveraged investment strategies to mutual fund investors.


Up until recently such features were unheard of in ETF land, but that's changed.


In June 2006, ProFunds launched a group of ETFs known as the ProShares. The ETFs offer long, short, and leveraged exposure to key stock indexes like the Dow Jones Industrial Average, Nasdaq-100, and S&P 500.


Steve Cohen, the Head of Marketing takes time to discuss progress of the ProShares.


Q: Before you launched the ProShares ETFs, were you ever concerned about the possibility they would cannibalize your mutual funds (ProFunds), which use similar strategies?


SC: We viewed the opportunity to reach investors as one that far outweighs the risks of cannibalizing ProFunds assets. We find that many investors are comfortable with the ProFunds while others prefer the ProShares ETFs. Some use both. So far, we have not seen a shift from ProFunds assets into ProShares.


Q: ProShares have enjoyed impressive asset growth already reaching $2 billion. Is that growth coming from new investors or is it from converted mutual fund shareholders?


SC: Asset flows come from a combination of both, but predominantly from new investors.


Q: Which of your ETFs has the most assets and trading volume?


SC: There has been a lot of interest in the short ETFs even though the market has been in an upswing. Ultra QQQ (Amex: QLD) and Ultra Short QQQ (Amex: QID) has thus far attracted the most interest in terms of assets and trading volume.


Q: What are the advantages of using an inverse performing ETF compared to directly shorting the index or index ETF?


SC: Short ProShares make short exposure less complicated compared to selling an ETF short. Also, no margin accounts are needed and ProShares can be used in IRAs.


Q: What mechanisms are used to obtain leverage and inverse performance of the underlying indexes?


SC: We use a combination of individual securities along with futures contracts, options, and swap agreements.


Q. Some analysts have been publicly critical of the ProShares and the flood of new ETFs. How do you respond?


SC: There has been a debate about whether there are too many ETFs in general. Some think there are fewer ETFs compared to mutual funds at the same stage of their respective growth, others disagree. Ultimately, the marketplace will decide whether there's too many ETFs. ProShares has received a ton of positive feedback from the investment community, which seems to validate our strategy.


Q: Thanks Steve.