PowerShares launched three new exchange-traded funds (ETFs) onto the American Stock Exchange (Amex) this morning, as the group expanded its environmentally friendly ETF portfolio and launched a controversial new fund into the private equity space. The new funds are the:
- PowerShares Cleantech Portfolio (AMEX: PZD)
- PowerShares Progressive Energy Portfolio (AMEX: PUW); and
- PowerShares Listed Private Equity Portfolio (AMEX: PSP)
The prospectuses are available here.
The Cleantech and Progressive Energy funds build on the surprising success of the PowerShares Wilderhill Clean Energy Portfolio (AMEX: PBW), which launched in March 2005 and has attracted over $630 million in assets, despite posting relatively modest results (the fund is up 5 percent since inception, but lost 4.59 percent over the past twelve months). PBW capitalized on rising investor interest in alternative energies, driven in part by the recent spike in gas and oil prices. The fund holds shares in companies developing green and other renewable sources of energy, such as solar, ethanol and wind power.
The Progressive Energy fund takes the flipside of the environmental approach to energy, investing not in renewables but in technologies and tecnhiques that improve the environmental performance of old energy sources like coal, oil and nuclear power. The index includes 36 names working in such "bridge" areas as hybrid car technology and clean coal generation.
The Cleantech fund, meanwhile, broadens out its environmental focus to include companies working in a variety of ways to improve industrial efficiency and cut pollution across multiple categories, such as air quality, recycling, water purification, etc. The 75-component company will appeal primarily to the socially responsible investing set, who believe that improving environmental performance is a growth industry in today's crowded world.
The Private Equity fund is the oddball in the group, tracking an modified equal-dollar weighted index of 34 companies involved in the rapidly growing private equity space. Private equity firms have been making headlines recently for their mega-deals buying out companies like HCA and Harrah's Casinos. While most of the private equity firms are … well … private … a handful of them (particularly in Europe) have publicly traded divisions. Some investors worry that these publicly traded private equity firms will suffer from poor performance, since they cannot pay rainmakers at the same level as private firms. Nonetheless, these funds offer the only real way for the little guy to buy into the private equity space.
Mark Sunderhuse, co-managing partner of Red Rock Capital Partners, who created the index, has compared the birth of the first private equity fund to the emergence of real estate investment trusts 20 years ago. At the time, only institutions could access commercial real estate, but today, REITs are a major asset class.
The fund is unusual in other ways, too: for instance, Red Rock has incredible latitude to shape and weight the index, and can take into account factors like "manager quality" … a subjective measure if ever one existed.
All three funds charge expenses of 70 basis points, PowerShares new standard, and a level that makes fans of low-cost indexing uncomfortable.
One challenge for these funds will be how well they can track their indexes. The tracking error for the WilderHill Clean Energy Portfolio has been significant (if positive): the fund has beaten its index by 1.23 percent since inception, and by 1.8 percent over the past year. Like the new listings, PBW has sizeable positions in a number of smaller companies, and may have run up against liquidity constraints. If the new funds are a success, they could have similar difficulties as well.