Can Rydex Challenge ProShares' Leveraged ETF Dominance?

Rydex comes in with leverage at 70 basis points. Can they chip into ProShares' $9 billion and growing? Is there a lawsuit on the way?

One-time Rydex kid Michael Sapir and ProShares have moved into a position that to the outside observer looks practically unassailable. And they're now even into the international market (and aggressively and smartly advertising into everyone's fear about an EM and China collapse with the short/ultrashort products). So can Rydex move into the space with authority?

It appears that they will have many very similar offerings. I would like to see a head-to-head study on how these things track intraday and over longer periods vs. the ProShares. I think the answer is "very similarly" but I'd like to see that with a little track record on the tradeable product. Does 70 basis points see a flood of assets go over to Rydex overnight? My sense is that the history of the ETF business says that the answer is no. But over time, I WOULD expect them to chip into the new assets flowing in (and it does seem to me that the pie on the leveraged/inverse stuff will continue to grow).

It took IVV a long time to make inroads into SPY assets and SPY is still 5 times (more or less) bigger. But it has made inroads, as has Vanguard, for example.

I do like this Rydex operation. They're closing in on $5 billion in assets, and it's not for nothing. There's not a ton of marketing going on over there, but they've got a very interesting, and to me (a bit like SSgA's product lineup), a sometimes overlooked suite of relatively low-fee, useful products. The pure value and growth funds are nice, and the equal-weighted S&P 500 (RSP) has been a phenomenon of its own. So it looks to me like Rydex under the new regime will be fine. It will be interesting to see if they get a bit more aggressive on marketing and sales, and how the competitive battle royale with ProShares shapes up.

As a business, Rydex, despite the new asset flow, has clearly come out worse for the wear against ProShares since ETFs have entered the scene. Not only does ProShares have $9 billion in Assets to Rydex's $4.5 billion (or so) but they're much higher margin assets. And ProShares has bled very little from its more traditional mutual fund products. Rydex has lost assets, and many of its ETFs are great investor products, but not big moneymakers. So we're watching how this changes things.

Written by Jim Wiandt

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