PowerShares Capital Management is billing its nine sector exchange-traded funds as the “first fundamentally sound sector portfolios.” PowerShares calls market-cap weighting the “old school investment approach” and says its funds use the “new school investment approach.” PowerShares launched the ETFs last week and recently blasted an e-mail to its financial advisors to explain the offerings.
The nine ETFs are based on FTSE RAFI indexes which weight companies on four categories: sales, cash flow, book value and dividends. PowerShares is offering the ETFs as an alternative to those which follow market cap-weighted indexes. The firm also launched a mid-size companies ETF.
The firm based previous ETFs on the fundamentally-weighted indexes of Research Affiliates, whose founder Rob Arnott is a lead proponent of alternative weighting. PowerShares ETFs use “Intellidex” indexes, which are rules-based.
While the PowerShares ETFs are the first sector offerings on FTSE RAFI indexes, they are not the only sector offerings to stray from market-weighted indexes. State Street Global Advisors launched six equal-weighted sector ETFs in June (www.fundaction.com, 7/21).