PowerShares Launches Volatility, Beta ETFs

May 05, 2011

PowerShares serves up two innovative ETFs linked to low-volatility and high beta.

Invesco PowerShares, the investment manager known for the Q’s ETF of Nasdaq’s 100 biggest companies, launched two, first-of-their-kind, domestic equity ETFs: one a volatility-weighted fund and the other a beta-weighted fund.

Both the PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV) and the PowerShares S&P 500 High Beta Portfolio (NYSEArca: SPHB) will replicate alternatively weighted benchmarks linked to the S&P 500 Index that Standard & Poor’s unveiled less than a month ago.

But while SPLV should be particularly attractive in times of weak markets due to its focus on low-volatility stocks, SPHB is designed for investors who want to take a bullish tactical view of the U.S. stock market.

“We believe the PowerShares S&P 500 Low Volatility Portfolio is an attractive tool for advisors seeking lower volatility for the portfolio core, and may offer a measure of protection in down cycles while still potentially participating in upward trending cycles,” Ben Fulton, Invesco PowerShares’ managing director of global ETFs, said in a press release.

“For advisors and investors seeking cost-effective ways to add a bullish tactical portfolio tilt, we believe the PowerShares S&P 500 High Beta Portfolio allows investors to increase their exposure to the equity market without using leverage,” he added.

Both funds have annual expense ratios of 0.25 percent.

The Indexes

SPLV tracks the S&P 500 Low Volatility Index, which measures the performance of the 100 least volatile stocks of the S&P 500. The securities are weighted relative to the inverse of their corresponding volatility, meaning the least volatile securities carry the most weight in the portfolio.

Utilities and consumer staples dominate SPLV’s sector allocations, representing 29 percent and 28 percent, respectively, of the total mix, with large-cap value stocks representing nearly 50 percent of the portfolio.

By contrast, SPHB tracks the S&P 500 High Beta Index, which comprises the 100 securities most sensitive to changes in market returns within the S&P 500 Index pool, sensitivity being measured by the beta of an individual stock. The highest-beta stocks will weigh the most in the portfolio.

From a market-cap and style allocation perspective, more than 43 percent of SPHB is tied to midcap growth stocks, while 27 percent is allocated to midcap value names, according to information posted on PowerShares’ website.

Overall, SPHB is heavily tied to financials, with that sector representing more than 30 percent of the portfolio. Consumer discretionary and energy each snagged some 18 percent of the pie.



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