PowerShares Launched Four Active ETFs

Posted by Sun on April 15, 2008

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Less than a month after Bear Stearns became the first firm ever to offer actively managed exchange-traded fund (ETF), PowerShares, an major player in the ETF arena, introduced its own active ETFs last Friday. The four new ETFs, including both equity and fixed income funds, are:

PowerShares Active AlphaQ Fund (PQY)
PowerShares Active Alpha Multi-Cap Fund (PQZ)
PowerShares Active Mega Cap Fund (PMA)
PowerShares Active Low Duration Fund (PLK)

Following are brief summaries of the new funds.
The Active AlphaQ Fund invests in companies, both domestic and international traded in the U.S., with more than $400 million market cap. Currently PQY consists of 50 stocks listed on NASDAQ. The fund’s investment objective is to seek long-term capital appreciation. PQY has an expense ratio (ER) of 0.75%.

The Active Alpha Multi-Cap Fund seeks long-term growth of capital. Similar to PQY, PQZ also invests in domestic companies as well as foreign companies listed on U.S. exchanges. It has 50 stocks with 35.76% in large-cap, 46.1% in mid-cap and 16.22% in small-cap. The fund’s ER is 0.75%.

The Active Mega Cap Fund holds stocks in the Russell Top 200 Index and other mega-cap stocks. Therefore, nearly 99% of the fund’s investments are in large-cap companies. PMA’s top five holdings are Exxon Mobil (XOM), Pfizer (PFE), Merck (MRK), Intel (INTC) and Verizon (VZ). PMA also has an ER of 0.75%.

The Active Low Duration Fund is a fixed income ETF that invests 80% of its assets in U.S. government, corporate, and agency debt securities. Nearly 98% of the fund’s investments have a maturity between 0 and 5 years, with a weighted average effective maturity of less than 3 years. As a fixed income investment, PLK has a low ER of 0.29%.

Before the introduction of active ETFs, all exchange-traded funds are passive investments, tracking their respective indices. Now we have the first actively managed stock ETF and more are expected to come, I am wondering if someday ETFs can completely replace mutual funds, given their advantages in trading and costs.