Simeon Hyman

ProShares? Sure. I've been in the asset and wealth management business for about 30 years. And I've been at ProShares over a decade. ProShares is a leading ETF provider. We've got about $65 billion in funds across a range of solutions. And I just love the opportunity to be part of a 21st century solution at an innovative firm. So what about outside of work? I always like to ask,

What do you like to do when you're not at the desk, you're running around? Any hobbies?

I do play a little guitar. My son thinks I'm not good enough, but I will try to keep up with him. And a little bit of running and swimming and biking and maybe a little skiing if there's snow

On the ground. Yeah. I'm from the Northeast. We're trying to ski, but it just seems like winter

Doesn't happen anymore. At least they can make snow if it's cold enough.

That's true. So let's talk about ProShares as a whole. Can you just talk what the company does at

A very high level for clients? We're an ETF firm. We manage, as I said, about $65 billion of funds in the ETF structure. And we have a range of solutions. Some may be familiar with our leverage and inverse funds that are very valuable for folks who are looking to either hedge their portfolios or get particular exposures. And then we also have a very important, more classic buy and hold business. Among the flagships there are a suite of dividend growth ETFs, including ticker NOBL, the S&P 500 dividend aristocrats that some of your listeners may have heard of.

So let's kind of talk about... I want to talk about iSpy today, the cover call ETF. But let's talk about the lineup a little bit because the lineup is very unique. It's innovative. There's a lot of different things on it. What are you kind of excited about over the next maybe 12 to 24 months

That you think are going to kind of gain some market share and some popularity among investors? Sure. On the leverage and inverse side, we're just happy to have a very broad range of those solutions for portfolio construction and hedging purposes. So that's there for folks to avail themselves of. And that's been a proven valuable solution for folks. And on our strategic or buy and hold side, we think those dividend growers are important. When you look back at the last couple of years at the 493 stocks that have been left behind, you kind of want to think about those that haven't been left behind for good reason. And we think those classic dividend growers are certainly a place where

People are returning their attention to. Yeah, I would agree. it was kind of a weird year over the last two years. Equal weight has been left behind. A lot of different places in the market, like value, have also been left behind. So I agree with you. I think that that could be a place where investors start to be looking at putting some of their asset allocation dollars. But let's talk about iSpy. Covered call ETFs are hot right now. Can you explain at a very high level

What a covered call ETF actually is? A covered call is an investment strategy where you own a stock or a bunch of stocks, and then you sell a call option. You sell the upside, the right to participate in the appreciation of stocks to somebody else. It's covered because you own it. So you're simply capped out of your gains. You don't have unlimited exposure. So that's why they're called a covered call. And that's been a popular income generating strategy for folks because you get money for selling this call option. But many folks, I think, have forgotten about the other piece. You're selling away the upside.

And so it is a yield play. What type of yield can an investor expect to generate with a product like yours?

So let me first start with the traditional strategy. A traditional monthly covered call strategy writes a call once a month. And the challenge there is, let's say you sell away the right for the upside of your stock and it goes up at the beginning of the month. For the next 27, 28 days, you've got no more upside left. There's an index for a traditional monthly strategy. It's the BXM, the SIBO monthly buy right index. Last year in 2023, the S&P was up 26%, but a traditional monthly strategy, that index was only up 11, less than half the upside. That is what we're solving with iSpy.

And so let's get into the mechanics of that, right? So the biggest difference between iSpy and the

Others is this is a daily write. Is that correct? iSpy is the first ETF powered by a daily covered call strategy. This is new stuff. You could only have done this, the daily options only about 18 months old. And indeed, the key here is that by writing or selling, writing and selling is kind of, this is the same thing. People use both words. By selling that option every day, you get another little nibble at that upside every morning. And so you can generate the income that covered call strategies are known for, but you can also target the full return of, in this case, the S&P 500 and solve for that trade-off that the classic strategies have left out where they've left profit behind.

So when you're generating this income, when is iSpy kicking off a distribution? Is it a monthly distribution, weekly? Like what's the frequency of distribution?

It's a monthly distribution. We just had our first one. The annualized distribution would be a little over 11%, which is very competitive with classic covered call strategies. So you would expect to see

That on a monthly basis. So what are the risks? Because it could be confusing for maybe a retail investor, somebody that doesn't necessarily understand options. So if I'm buying this product, what is my overall risk? Is it just the risk of the S&P 500?

That's exactly the risk. So by writing these on a daily basis, the S&P 500, and this is an index strategy. I don't wake up in the morning and decide how to do this. This is the S&P 500 daily covered call index that we track in iSpy. But it indeed has risk similar to the S&P 500. And look, the 10-year treasury is now at 4%. If stocks go down, they're likely going to go down because there's a recession, in which case we are likely to finally have bonds do their diversifying job. So I think among the interesting things over the last 15 years, when bonds were depressed in their yield by things like quantitative easing, they couldn't do their diversifying job. So people look for kind of

Buy some bonds. Right. So how is the ETF constructed under the hood? So if I'm looking at the underlying holdings, in order to achieve this result, what is the fund doing on a daily basis?

You own the 500 stocks. And then this call that you're selling every day is executed by swap. So every day, it's much more efficient to do that to actually buy the individual options. But the economics is precisely the same as writing a covered call every day.

So how would an investor use an ETF like this inside of an overall model portfolio? Where would this sit?

Well, the beauty of this is it sits right in the equity portfolio. The traditional monthly strategies are kind of in a never, never land halfway between stocks and bonds. Here, iSpy delivers, targets the full return over time of the S&P 500. So it behaves really nicely in your core equity portfolio while generating the income that you need, whether it's for expenses, for RMDs in a rollover

Account, whatever you need that income for. So could you see a situation where maybe yields come back down? Let's say we do enter a recession, yields come back down. So fixed income is going to do its job again. But we all know at some point rates are going to have to come back up and we're going to have a situation where fixed income did what it did in 2022. Could you see an ETF like this that's spitting out yield being an option for almost a fixed income sleeve that at some point?

I don't want to call it fixed income because it's equity risk. So yeah, in prior lives, I was chief investment officer of a trust company. This is equity risk. But 100% to your point, the five and change money markets are going to be ancient history soon. The two-year treasury is already has a almost 1% lower yield than it did three or four months ago. People do need income and iSpy can be an important contributor to that solution. So how do you see this covered call ETF

Market kind of expanding? You're doing it with the S&P 500. We're starting to see it in some other places. Do you see this as a people start to even do single stock cover call strategy? how do you see the evolution of this market occurring? There's a long history of folks doing

Single stock covered calls. We're more interested in the broad-based approach that we have in iSpy. And we're an innovative forum. So we're always looking at new opportunities to apply covered call strategies or a range of other solutions as well. So I really appreciate your time this week.

Before I let you go, where can people learn more about you? Where can people learn about the entire ProShares lineup in iSpy? ProShares.com. Keep it simple. All right. Well, again, thank you very much for joining me. I appreciate it.