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Portfolio > Portfolio Construction

Shifting Weights

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The argument between fundamentals on the one hand and size on the other is only getting louder, and the latest round of ETFs from PowerShares Capital Management is only likely to contribute to the noise.

Based upon “fundamentally weighted” indexes (which measure companies by their sales, cash flow, book price and dividends), the new breed of PowerShares products differs substantially from traditional equity indexes like the Russell 1000 or S&P 500, which rank companies by their market capitalization. The company has been on a campaign to get investors to notice the differences between the two methodologies, citing data showing that traditional market-cap-weighted indexes overweight overvalued companies and underweight undervalued companies.

The first fundamentally weighted ETF that PowerShares brought to market was the FTSE RAFI U.S. 1000 (NYSE: PRF), which launched in December 2005. Through mid-September, the fund had delivered a gain of 9.24 percent, slightly outperforming the S&P 500. The new offerings, which debuted in September, drill down into the FTSE RAFI to create a suite of nine industry sector funds and one small/mid-cap portfolio. According to the prospectus, all of the new funds carry an expense ratio of 0.60 percent.

PowerShares also launched DB G10 Currency Harvest Fund (Amex: DBV) in September, working from an underlying index developed by Deutsche Bank that has been dubbed as an “enhanced” currency index. This benchmark aims to provide simultaneous equal-weighted exposure to the three highest yielding and the three lowest yielding G-10 currencies. In total, the fund will have six currency positions that are rebalanced quarterly.

To cap off a busy season, PowerShares also announced that its merger with AMVESCAP was completed on September 18. “AMVESCAP’s global distribution network, long-standing relationships with advisors and brand equity will greatly accelerate the availability of PowerShares ETFs to investors,” says Bruce Bond, president and CEO of PowerShares Capital Management. “On behalf of PowerShares management and staff, we are excited about joining the AMVESCAP team headed by Marty Flanagan and look forward to the many synergies and growth opportunities that can be achieved by the merger.”


PowerShares FTSE RAFI Basic Materials Sector Portfolio (NASDAQ: PRFM)

PowerShares FTSE RAFI Consumer Goods Sector Portfolio (NASDAQ: PRFG)

PowerShares FTSE RAFI Consumer Services Sector Portfolio (NASDAQ: PRFS)

PowerShares FTSE RAFI Energy Sector Portfolio (NASDAQ: PRFE)

PowerShares FTSE RAFI Financials Sector Portfolio (NASDAQ: PRFF)

PowerShares FTSE RAFI Health Care Sector Portfolio (NASDAQ: PRFH)

PowerShares FTSE RAFI Industrials Sector Portfolio (NASDAQ: PRFN)

PowerShares FTSE RAFI Telecommunications & Technology Portfolio (NASDAQ: PRFQ)

PowerShares FTSE RAFI Utilities Sector Portfolio (NASDAQ: PRFU)

PowerShares FTSE RAFI US 1500 Small-Mid Portfolio (NASDAQ: PRFZ)

PowerShares DB G10 Currency Harvest Fund (Amex: DBV)


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