PowerShares, the Illinois-based ETF giant, announced plans to bring four more funds to market, potentially expanding the firm’s growing lineup to 161 products. The proposed funds, which were detailed in a recent filing with the SEC, look to add to the growing trend of issuers targeting the ‘high beta’ and ‘low volatility’ ETF spaces by bringing funds based on these metrics to investors seeking exposure in either the developed or emerging markets. Although details remain scarce at this point in time– expense ratios and top holdings were not released– we highlight below some of the key details from the filing by this ETF behemoth:
- PowerShares S&P International Developed High Beta Portfolio (IDHB)- This proposed fund looks to track a benchmark of securities from the S&P Developed Ex-US BMI universe that are the most sensitive to overall market returns. The index does this by finding the beta of every stock in the underlying index and ranking the component securities by this metric. The 100 stocks with the highest betas are then included in the fund and are rebalanced quarterly. Investors should also note that the index will weight securities based on their beta rather than the more common method of market capitalization weighting, giving the biggest weights to the most sensitive companies.
- PowerShares S&P International Developed Low Volatility Portfolio (IDLV)- This fund will also select securities from the S&P Developed Ex-US BMI, but IDLV will look for firms that have low levels of volatility instead of high betas. The index does this by ranking all of the stocks in the category by volatility, or the standard deviation of price changes. The companies that have lowest levels of volatility are then included in order to give the fund a 100 security composition. Much like IDHB, this fund will not weight by market capitalization, instead giving the biggest weights to the least volatile companies and the smallest weights to the comparatively higher volatility firms.
- PowerShares S&P Emerging Markets Low Volatility Portfolio (EELV)- For investors seeking a low volatility approach in the often rocky emerging markets, EELV could, one day, be good choice. The fund looks to track an index that gives investors exposure to the securities with the lowest levels of volatility. First, the fund will take all of the components of the S&P emerging Markets Plus BMI universe and rank them by the standard deviation of their price changes. Much like the fund’s developed market counterpart, EELV will then include the 100 least volatile companies in the index, giving the highest weightings to the firms with the lowest levels of volatility.
- PowerShares S&P Emerging Markets High Beta Portfolio (EEHB)- Much like the other high beta product, EEHB will look to give investors exposure to 100 companies that are the most sensitive to market movements. However, instead of tracking firms in developed markets around the world, this fund will focus on companies based in emerging markets, namely by looking at securities in the S&P Emerging Markets Plus BMI universe. Investors should also note that the fund looks to weight securities according to their beta, giving the highest weightings to the most sensitive companies and the smallest weightings to companies that are less sensitive to market movements.
Low Volatility, High Issuer Interest
The move by PowerShares comes just a few months after the firm launched low volatility and high beta options for investors focused on the domestic equity market. The products, the S&P 500 High Beta Portfolio (SPHB) and the S&P 500 Low Volatility Portfolio (SPLV), give investors access to the same components as one who invested in an S&P 500 ETF but weight the securities according to market sensitivity and price movements instead. This results in a fund that is heavier in financials for the high beta version and more ‘defensive’ oriented for the low volatility fund, which has high levels of exposure to both the utilities and consumer staples sectors [see Five Equity ETFs With Low Betas].
With that being said, the products have had mixed results with investors so far in the short time since their launch. SPHB has amassed just under $5.5 million so far and trades volume of about 65,000 shares a day, hardly a blistering start. However, investors have apparently embraced SPLV in its short existence as the fund has garnered nearly $300 million and trades about 300,000 shares every day. The poor economy has certainly helped spark interest in the low volatility fund and certainly PowerShares looks to capture similar interest in international markets if it can bring these new funds to market at some point later this year or early next [also see iShares Files For Minimum Volatility ETFs].
Yet, while PowerShares has made a good start in the space, newcomer Russell is also making waves as well, as the Washington-based firm currently has high and low volatility, as well as high and low beta, funds targeting both the Russell 1000 and Russell 2000 indexes. Although these funds haven’t caught on with many investors yet– the most popular has just under $36 million in assets– it does show that the high beta and low volatility spaces are becoming increasingly competitive and that PowerShares may have a fight on its hands in order to dominate the space for the long term [see all the Russell ETFs here].
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Disclosure: No positions at time of writing.