Last week, PowerShares cut expenses on its lineup of fundamental index exchange traded funds (ETFs).

Murray Coleman for Index Universe interviewed Ed McRedmond, senior vice president, on the latest developments at PowerShares, including the decision to cut those fees.

The main reason the ratios were cut on the RAFI indexes is that they are positioned as an alternative to a traditional market-cap weighted index. The FTSE RAFI indexes have very low turnover, which provides somewhat fewer costs involved in managing those ETFs. McRedmond states that PowerShares wants to be competitive in the marketplace with lower-turnover types of funds.

Another issue as far as the fee-cutting goes is that total start-up costs aren’t always known, and it’s hard to be perfectly sure about how quickly or effectively a fund will attract new investors and assets.

McRedmond states that there is no question of whether the fundamental rating methodology doesn’t add value over time compared to a market-cap-weighted ETF, and that they have added value versus a passive, cap-weighted benchmark over the long term. PowerShares is not trying to be simply the low-cost provider, McRedmond says. All of their products follow a theme of bringing to market a value-added type of portfolio.

We discuss various indexing methods, including fundamental indexing, in iMoney: Profitable ETF Strategies for Every Investor.

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