Invesco PowerShares launched two new smart beta exchange traded funds based on the S&P 500 and Russell 1000 to potentially help investors enhance returns and reduce potential drawdowns.
PowerShares recently came out with the PowerShares S&P 500 Minimum Variance Portfolio (BATS: SPMV) and PowerShares Russell 1000 Enhanced Equal Weight Portfolio (BATS: USEQ). SPMV has a 0.13% expense ratio while USEQ has a 0.29% expense ratio.
The S&P 500 Minimum Variance Portfolio tries to reflect the performance of the S&P 500 Minimum Volatility Index, which measures the performance of a portfolio of equity securities using a managed volatility strategy that seeks to achieve lower total risk than the benchmark S&P 500.
The underlying index weights components using a managed volatility methodology that is designed to diminish the overall expected volatility or reduce the magnitude of price fluctuations of the index.
In contrast, the more widely known PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV) only targets the 100 stocks from the S&P 500 with the lowest realized volatility over the past 12 months.
The Russell 1000 Enhanced Equal Weight Portfolio tries to reflect the performance of the Russell 1000 Enhanced Value Equal Weight Index, which is comprised of Russell 1000 large-cap companies that exhibit upward price momentum and fair valuations.
Russell would first exclude those with zero or negative earnings over the past 12 months, screen for value stocks and target securities with greater positive price “momentum.” Lastly, the index is equally weighted, which may cause the fund to tilt toward more mid-sized issuers than a traditional cap-weighted index.
A value stock tends to trade a lower price than the stock would be expected to trade given fundamentals, like dividends, earnings and sales, which may cause the stock to trade at an undervalued price by investors. The index screens for cash flow yield, earnings yield and sales-to-price ratio.
Momentum is the tendency of recent changes in a stock’s price to persist for sometime, so investors are basically betting that high flying stocks with fly even higher due to broad stock market momentum.
For more information on new fund products, visit our new ETFs category.