Daily ETF Watch: Smart Beta S&P 500 Fund

PowerShares plans another S&P 500-based smart-beta ETF, this one targeting low volatility and low rate sensitivity.

A recent filing from Invesco PowerShares indicates the firm plans to launch yet another smart-beta ETF derived from the S&P 500. The firm has already rolled out four ETFs based on the cap-weighted S&P 500 that target different factors.

Factor-based ETFs are a popular trend these days, with iShares and State Street Global Advisors among the ETF issuers currently growing their lineups of such funds.

However, PowerShares’ preferred approach is slightly different from the approach of other factor-based ETFs. Although the nuances vary with the factor, rather than simply reweighting the components to emphasize the targeted factor, the methodologies of the underlying benchmarks each rank the components of the S&P 500 according to their respective factors and select the top-ranking tier of stocks to be the new index. The new index’s components are then weighted by the targeted factor.

PowerShares has had a pretty successful run with this approach, and there is several billion dollars in assets under management among the four funds, with the lion’s share going to the low-volatility fund. The existing funds and their individual assets are as follows: 

• PowerShares S&P 500 Low Volatility Portfolio (SPLV | A-47), $5.5 billion
• PowerShares S&P 500 High Beta Portfolio (SPHB | A-51), $228.6 million
• PowerShares S&P 500 High Quality Portfolio (SPHQ | A-77), $507.5 million
• PowerShares S&P 500 High Dividend Portfolio (SPHD | A-42), $294.1 million

The new filing for the PowerShares S&P 500 ex-Rate Sensitive Low Volatility Portfolio will track the S&P 500 Low Volatility Interest Rate Response Index. It selects the 100 components of the S&P 500 that exhibit the lowest combination of volatility and interest-rate sensitivity.

Higher-volatility stocks are generally considered to be riskier, and stocks sensitive to changes in interest rates are usually the hardest hit when interest rates rise. Most investors are expecting a rise in interest rates to occur sometime in the next year.

The filing did not include an expense ratio or a ticker. However, the filing did note that the fund is slated to list on the NYSE Arca.