There is a quiet revolution sitting in your retirement account, and most of us have never thought about how it works. It is called the ETF, the exchange-traded fund, and this week one of the industry’s pioneers admitted something surprising: even he thinks the famous wrapper has limits.
ProShares CEO Michael Sapir sat down with The Daily Upside’s Advisor Upside this week, and his message was striking. ProShares, founded in 2006 as the pioneer of leveraged and inverse ETFs and now managing more than $100 billion, is building active-investment strategies in fixed income and private markets and plans to launch a lineup of interval funds. “ETFs are great delivery vehicles for a lot of exposures and strategies, but not the best for others,” Sapir said, in the September 24 interview. Coming from a man whose company helped define the ETF era, that is worth unpacking. To understand what he means, you first need to understand the wrapper itself.
What an ETF actually is. Think of it like this: a mutual fund is a basket of investments you can only buy or sell once a day, at whatever price the market sets after the closing bell. An ETF is the same basket, but it trades on a stock exchange all day long, like a single stock. You can buy it at 10 a.m., sell it at 2 p.m., set a limit order, or hold it for thirty years. That intraday flexibility was revolutionary when ETFs went mainstream.
But the real magic is structural, and it is called the creation-redemption mechanism. When lots of investors want to buy an ETF, large institutional players called authorized participants create new shares by delivering the underlying stocks or bonds to the fund. When investors sell, the process reverses. This keeps the ETF’s market price hugging the value of its holdings, and it has a beautiful side effect: because the fund rarely has to sell securities itself to meet redemptions, it generates far fewer taxable capital-gains distributions than a mutual fund. That tax efficiency is one of the main reasons ETFs have become, in Sapir’s words, “the principal way advisors get their exposures,” a shift he calls “probably the biggest shift in investing in the last 100 years.”
Why the wrapper won. Three reasons, and they all come back to the everyday investor. First, cost: most broad-market ETFs charge a fraction of what actively managed mutual funds charge. Second, transparency: you can see exactly what is inside, every day. Third, access: a single share can buy you the entire U.S. stock market, or bonds, or gold, or Bitcoin futures (ProShares’ BITO, the first U.S. bitcoin-linked ETF, gathered more than $1 billion in two days at launch). The wrapper democratized diversification.
Where the wrapper strains. Now back to Sapir’s admission. Some strategies do not fit neatly into a vehicle that must price and trade every second the market is open. Private markets, think private equity or private credit, hold assets that are not easily valued daily. Certain fixed-income strategies involve securities that trade infrequently. For those, a different wrapper, like an interval fund, which lets investors redeem only at set intervals, can be a better fit. The lesson is not that ETFs are flawed. It is that no single package suits every kind of investment, and the industry is mature enough now to say so out loud.
A word of caution on the exotic wrappers. The same innovation that gave us cheap index ETFs also gave us leveraged and inverse funds that promise double or triple the daily return of an index. ProShares pioneered these, and they are legitimate tools for short-term tactical traders. But they reset daily, which means over weeks and months, compounding can make their returns diverge sharply from what you would expect. A 2x fund held for a year in a choppy market can lose money even if the underlying index ends flat. If you cannot explain that math, you should not own the product. The wrapper is only as safe as your understanding of what is inside it.
The latest twist: the “analog” ETF. This week also brought a perfect illustration of how flexible the wrapper has become. Wedbush filed for an “analog economy” ETF focused on companies built around human labor, physical assets, and tangible goods: construction, machinery, materials, logistics. What is deliberately left out? AI, semiconductors, data centers, and power generation. Other funds are already targeting the so-called “HALO” economy: Heavy Assets, Low Obsolescence, as The Daily Upside reported. Whether that is a genuine new investment opportunity or clever packaging around sectors you could already buy is a fair question. But it shows the wrapper’s real power: any investment thesis, however niche, can now be delivered to your brokerage account in a single ticker.
So what should you do with all this? My take: start with the plainest wrappers. A broad stock-market ETF and a broad bond ETF, held for years, remain one of the great deals in financial history: instant diversification, tiny fees, excellent tax efficiency. Treat the exotic wrappers, leveraged, inverse, single-stock, thematic, like power tools. Useful in trained hands, dangerous as toys. And remember Sapir’s candor: the package matters less than the contents. A brilliant strategy in the wrong wrapper, or a mediocre strategy in a brilliant one, will both disappoint you eventually. Invest in what you understand, and let the wrapper do what it was designed to do: get out of the way.
