Powershares Files for Seven New ETFs
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Posted on Aug 7th, 2006
Jim Wiandt (Index Universe) submits: When Bruce Bond of PowerShares
says that he wants to provide ETFs across all asset class, he isn't
kidding around. Fresh from inking a deal with Deutsche Bank to co-brand
DBC's family of currency and commodity ETFs, PowerShares has filed
with the SEC for the right to launch seven new ETFs, including funds
tied to assets like preferred securities, listed private equity firms
and real estate investment trusts.
The seven new funds are:
PowerShares Financial Preferred Portfolio
PowerShares Listed Private Equity Portfolio
PowerShares REIT Preferred Portfolio
PowerShares DWA Technical Leaders Portfolio
PowerShares Value Line 400 Portfolio
PowerShares Value Line Industry Rotation Portfolio
PowerShares Wilderhill Progressive Energy Portfolio
The prospectus is available here.
The funds all carry a 70 basis point expense ratio, the new standard
for PowerShares and one of the highest expense ratios in the ETF
industry. Despite the high fees, however, the funds could attract
sophisticated investors as, in many cases, that tap into previously
untouched segments of the market.
For instance, the Financial Preferred Portfolio tracks the performance
of the Wachovia Hybrid and Preferred Securities Financial Index, a
market-cap weighted index of the preferred stocks of leading financial
companies. Preferred stocks are unique securities that operate
somewhere in the gray area between equities and fixed-income. Generally
speaking, they pay a fixed dividend to shareholders and have a higher
claim on assets in the event of a bankruptcy filing than do common
stocks. They do not, however, have voting rights, and the dividend does
not increase over time. They tend to be less volatile than common
stocks, but come with limited upside potential. They are traded largely
for their income potential.
The REIT Preferred Portfolio tracks a market-cap weighted index of REIT
preferred securities from Wachovia. Like the Financial Preferred
portfolio, the REIT fund trades income stability for potential upside
performance.
The PowerShares Listed Private Equity Portfolio attempts to capitalize
on the rising popularity of private equity investments, and the recent
trend of private equity funds listing their stocks on public markets.
This fund comes with a number of unusual tweaks and risks, including
the unusually subjective nature of the index. According to the SEC
filing, the index will be constructed by Red Rock Capital Partners
using a proprietary methodology that will look at items like the
"reputation" and "management" of individual companies. It will
be interesting to see how regulators, investors and specialists respond
to what appears to be a rather subjective index.
The DWA Technical Leaders Portfolio tracks the performance of 100 U.S.
companies selected by Dorsey Wright & Associates based on "strong
relative strength" characteristics. Relative strength is a measure of
how a stock is performing against its peers. Dorsey Wright chooses from
large- and mid-cap stocks.
The Value Line 400 Portfolio selects 100 "number 1 rated" and 300
"number 2 rated" stocks from Value Line's Timeliness indicator,
which uses a quantitative ranking system based on price and earnings
momentum, earnings surprises and other factors to select components.
The Value Line Industry Rotation Portfolio includes 75 stocks chosen
based on the "timeliness" of their industry. Essentially, the fund
chooses the highest rated stock in each of the 50 highest rated
industries, and the second highest rated stock in the second 50 highest
rated industries. The index is adjusted on a quarterly basis.
The PowerShares Wilderhill Progressive Energy Portfolio operates at a
unique point on the energy continuum. Unlike the existing PowerShares
Wilderhill Clean Energy Portfolio (PBW), which focuses on companies
involved in the development of clean energy technologies like solar and
wind, the Progressive Energy Portfolio selects companies seeking to
improve the use of fossil fuels and nuclear power. Companies creating
hybrid batteries or clean coal technology are just two examples of the
kind of companies included in the modified equal-weighted index.
The original PowerShares Wildherhill Clean Energy Portfolio is among
the most popular of the PowerShares' 37 existing ETFs, with assets
over $650 million.
PowerShares also already offers a Value Line fund, the PowerShares
Value Line Timeliness Select Portfolio (PIV), which (despite the name)
selects stocks based on a combination of Timeliness, Technical and
Safety ratings from Value Line. Launched in December 2005, it currently
has $185 million in assets.