ETF Watch: PowerShares Debuts Multi-Asset Funds

PowerShares launches four actively managed multi-asset ETFs-of-ETFs that target different risk levels. 

Today PowerShares by Invesco is rolling out four ETFs-of-ETFs that invest in multiple asset classes allocated to target different risk levels. Each of the actively managed funds will have an allocation to domestic equities, domestic debt and a combination of foreign equities and foreign debt.

The funds are listed on the Bats exchange. Bats Global Markets owns ETF.com. The four ETFs, their tickers and expense ratios are as follows:

• PowerShares Conservative Multi-Asset Allocation Portfolio (PSMC), 0.37%            
• PowerShares Moderately Conservative Multi-Asset Allocation Portfolio (PSMM), 0.38%
• PowerShares Balanced Multi-Asset Allocation Portfolio (PSMB), 0.39%
• PowerShares Growth Multi-Asset Allocation Portfolio (PSMG), 0.39%      

“We’ve designed these portfolios across a range of investor risk preferences to ensure that there is a solution for every type of client. The portfolios range from a conservative blend of 80 percent fixed income and 20 percent equities to growth, which has 80 percent equities and 20 percent fixed income,” said Jason Bloom, global market strategist at Invesco PowerShares.

Each fund typically holds 10 to 20 other ETFs selected based on factor exposures and how well they represent their respective asset classes, as well as qualitative and quantitative criteria, the prospectus says. Bloom says that the component ETFs are selected using a proprietary methodology.

“Combining smart beta’s rules-based exposure with the features of active management provides investors with portfolio strategies that go beyond the limitations of traditional passive investing and benchmark-centric active management,” Bloom noted.

“Risk is an important feature to focus on, considering all investors have varying degrees of risk appetite and they need solutions that suit them,” he added.

The Portfolios
PSMC, the fund with the least risk, can allocate 20-50% to domestic equity and 50-80% to domestic debt, but only 5-10% to foreign exposure. The allocation ranges for PSMM are essentially the same, but the fund can have up to 15% exposure to foreign securities.

Meanwhile, PSMB can allocate 50-70% to domestic equity, 30-50% to domestic debt and 10-25% to foreign exposure. PSMG can allocate 60-80% to domestic equity, 20-40% to domestic debt and 20-30% to foreign exposure.

These are not the first ETFs to offer a multi-asset, targeted-risk solution. In fact, iShares has a similar family of asset allocation ETFs that have a combined total of $2.4 billion in assets under management, but those funds, which launched in 2008, track underlying indexes rather than rely on active management. Interestingly, no matter its level of risk, each of the four funds in the ETF family comes with an expense ratio of 0.25%.

However, Bloom says that the PowerShares products offer a unique proposition with their combination of an actively managed portfolio and exposure to passive ETFs.

“For example, each of the actively managed portfolios includes exposure to smart-beta ETFs, a rules-based investment methodology that uses factor selection and/or alternative weighting approach in an effort to outperform a benchmark, reduce portfolio risk or both,” he said.

Bloom added that the Invesco Global Solutions Development and Implementation team complements the smart-beta exposures with its members’ expertise in asset allocation.

Contact Heather Bell at [email protected].