PowerShares, one of the pioneers of the factor-driven ETFs, announced this week an expansion of its suite of international products. The company has rolled out two new ETFs that will target high beta stocks in international stock markets, giving investors new tools for amplifying their exposure to volatile equities in markets beyond the U.S. The PowerShares S&P Emerging Markets High Beta Portfolio (EEHB) will seek to replicate an index of about 200 emerging markets stocks that have exhibited the highest beta over the past 12 months. The PowerShares S&P International Developed High Beta Portfolio (IDHB) will maintain a similar objective but focus on high beta stocks in developed markets excluding the U.S.
PowerShares already offered the S&P 500 High Beta Portfolio (SPHB), which targets the 100 stocks from the S&P 500 that have the highest beta over the previous year. Since debuting in May of last year, SPHB has accumulated about $70 million in AUM. SPHB has, not surprisingly, exhibited quite a bit more volatility than the S&P 500 SPDR (SPY) since its launch:
The two new ETFs give investors tools for focusing on the most volatile stocks in these markets, making them efficient ways to increase risk exposure and overall volatility. As such, these ETFs could potentially be used as a way to increase volatility in anticipation of strong performance out of international stock markets in the short or medium term. They might also have appeal as components of a longer-term portfolio for investors who believe that taking on higher volatility can lead to excess returns over the long haul. “PowerShares Global Factor-Driven ETFs represent a new way for investors seeking to manage equity exposure by using specific factor weighted ETFs as building blocks,” said Ben Fulton, Invesco PowerShares managing director of global ETFs. “Investors are seeking a more tactical approach to investing and we believe the PowerShares Global Factor-Driven ETFs can provide an efficient means to capitalize on bull markets by adding beta to their portfolio, while having the flexibility to reduce risk in flat or bear markets by adding low volatility strategies to their portfolio.” [see Emerging & Frontier Markets ETFdb Portfolio]
EEHB will charge an expense ratio of just 0.29% after a fee waiver that will remain in place until at least April 2013. That makes the high beta ETF one of the cheapest options for emerging markets exposure; the average for the Emerging Markets ETFdb Category is 0.65%.
IDHB will charge an expense ratio of just 0.25% after the fee waiver [see iShares: The Low Cost ETF Issuer?].
Factor ETFs In Focus
In addition to the high beta suite of ETFs, PowerShares also offers low volatility products that are designed to target the securities that have historically exhibited low volatility. Multiple other issuers have also been developing “factor ETFs” or “factor-driven ETFs” that deliver low cost, low maintenance access to investment strategies that have been popular for decades but previously not available in the ETF wrapper. Other offerings include ETFs that target high momentum stocks, implement contrarian strategies, or pursue a Growth At A Reasonable Price allocation.
Russell also offers a trio of low beta ETFs including the international-focused XLBT and SLBT and LBTA, which target subsets of the Russell 2000 and Russell 1000, respectively.
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Disclosure: No positions at time of writing.
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