Invesco’s (NYSE: IVZ) PowerShares unit is the fourth-largest U.S. issuer of exchange traded funds. PowerShares had over $100 billion in ETF assets under management at the end of the third quarter and is the company behind the Powershares QQQ (NasdaqGM: QQQ), one of the largest and most visible U.S. ETFs.
The company is also home to one of the most expansive lineups of ETFs, spanning myriad asset classes, including a broad swath of smart beta funds. In fact, Illinois-based PowerShares has one of the deepest and most seasoned rosters of smart beta ETFs. An ongoing smart beta boom is likely to be led in part by PowerShares and perhaps benefit shares of Invesco. [Smart Beta Boom Could Lift BlackRock, Invesco]
“Invesco PowerShares pioneered many of the first non-market cap weighted strategies beginning in 2003: the first fundamental-weighted strategies, and other single factor-based portfolios including low volatility, momentum, high beta, quality and a whole suite of commodities ETFs that offer forward-rolling yield optimization capabilities,” said Invesco PowerShares Managing Director Dan Draper in an interview with Aparna Narayanan of Investor’s Business Daily.
Draper highlighted the PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV) as one example of PowerShares’ smart beta innovation. SPLV debuted in May 2011 and today flirts with $5 billion in assets under management. SPLV, the largest low volatility ETF, has proven successful that it inspired a wave of competing products from other issuers and other successful low volatility funds from PowerShares.
For example, the PowerShares S&P500 High Dividend Portfolio (NYSEArca: SPHD) is just over two years old and has $245.4 million in assets under management. SPHD has capitalized on two prominent themes: Investors’ desire for low volatility fare and their thirst for yield. SPHD, which has a trailing 12-month yield of 3.56% and pays a monthly dividend, has climbed 11.8% this year, aided by a 19.6% weight to the utilities sector. That sector is the second-best performer in the S&P 500 behind health care. [The Right Dividend ETF for Volatile Times]
SPLV, SPHD and dozens of other ETFs nicely position PowerShares to profit from rising demand for smart beta products. Data confirm that demand is surging thanks to increased use of alternatively-weighted ETFs by institutional investors.
“Low volatility, high dividend, and fundamentally-weighted ETFs are poised to see the greatest growth over the next three years as two-thirds indicate they are likely to use these products,” according to a research paper entitled “The Evolution of Smart Beta ETFs” released by Cogent Research and PowerShares earlier this year. [Bright Future for Smart Beta ETFs]
Among institutional decision makers, 53% expect to increase smart-beta ETF allocations over the next three years while 46% of non-users play to explore the idea of smart-beta ETFs in their portfolios. Financial advisors have a similar mindset with nearly two-thirds planning to increase their smart beta allocations this, according to a recent survey by ETF Trends and RIA Database.