PowerShares To Reshuffle ETF Indexes

by on June 26, 2010 | ETFs Mentioned:

Invesco PowerShares, the Wheaton, Illinois based firm known for its “intelligent” ETF products, is planning to change the indexes underlying three of the company’s Target Allocation ETFs according to a recent SEC filing. PowerShares is also looking to make a change to its high yield bond ETF. The changes to the product lineup include:

  • The Ibbotson Alternative Completion Portfolio will replace the Automatic Growth NFA Global Asset Portfolio (PTO). The fund may contain any combination of assets and the index is constructed by Ibbotson, a Morningstar Company.
  • The PowerShares Riverfront Tactical Balanced Growth Portfolio will replace the Autonomic Balanced Growth NFA Global Asset Portfolio (PAO). The fund will hold roughly 20 percent of its assets in fixed-income funds with the remaining in equity funds.
  • The PowerShares Riverfront Tactical Growth & Income Portfolio will replace the Automatic Balanced NFA Global Asset Portfolio (PCA). This fund will hold half of its assets in equity and half in fixed-income funds.

Each of the three funds currently tracks a New Frontier index.

PowerShares is also converting its High Yield Corporate Bond Portfolio (PHB) into a fundamentally weighted ETF adding “Fundamental” to the name. The revised High Yield Bond ETF will track the RAFI High Yield Bond Index, constructed by Research Affiliate, which uses fundamental factors such as sales, dividends, and cash flow to determine holdings [see Does Your Portfolio Need A "RAFI ETF"?]. As the scrutiny on the index construction process has increased, fundamentally-weighted benchmarks have become increasingly popular. Because they break the link between index weighting and stock price, these indexes can avoid some of the problems that have historically plagued cap-weighted indexes.

In terms of size, PHB is the most significant of the funds affected by the change; assets stand just north of $200 million. The other three funds, each of which is found in the Diversified Portfolio ETFdb Category, have aggregate assets of about $30 million.

Disclosure: No positions at times of writing.