From the February 2008 issue of Research Magazine • Subscribe!

February 1, 2008

Are Active ETFs on the Horizon?

According to a late November SEC filing, PowerShares Capital Management could be gearing up to launch four actively managed exchange-traded funds:o PowerShares Active AlphaQ Fundo PowerShares Active Alpha Multi-Cap Fundo PowerShares Active Mega-Cap Portfolioo PowerShares Active Low-Duration Portfolio

The AlphaQ and Alpha Multi-Cap Fund will each own 50 stocks, equally weighted. The AlphaQ selects Nasdaq stocks, while the Alpha Multi-Cap focuses on U.S. large-cap stocks.

The Mega-Cap Fund will screen 50 U.S. mega-cap stocks and the Low-Duration Portfolio is a bond fund that aims to outperform the Lehman Brothers 1-3 Year U.S. Treasury index.

Stocks for the equity funds are selected based on a quantitative selection methodology called "NOW" ranking, developed by AER Advisors. The system combines aspects of stock money flow with traditional securities analysis.

The newly titled Active ETFs call to mind PowerShares' existing lineup of Dynamic ETFs, which are based on Intellidex indices managed by the American Stock Exchange, but the new funds aren't constrained to follow any particular benchmark. Previously, the SEC had been very strict about making fund managers disclose the index they're tracking.

Other details revealed by the filing is that portfolio holdings for the Active ETFs will be disclosed daily at the fund's website and that the fund managers will be able to make up to three trades on the last business day of each week.

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Ron DeLegge is the San Diego-based editor of www.etfguide.com.

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