Tag Archives: consolidation

PowerShares to Close 19 ETFs

In another depressing development for the ETF industry, Invesco PowerShares Capital Management today announced plans to close 19 of its ETFs on May 18.

A random sampling of phone calls to industry insiders brought reactions ranging from “This is very bad news” to “It’s about time.”

“After carefully evaluating numerous factors including shareholder considerations, length of time on the market, asset levels and the potential for future growth, we proposed closing certain portfolios that have not gained sufficient acceptance with investors,” said Bruce Bond, president and CEO of Invesco PowerShares, in a written statement.

In the wake of the huge run up of 2006-2007, many industry insiders and industry watchers predicted a consolidation of funds. In didn’t take long for the process to start. Just two months into 2008 Claymore Securities shut down 11 ETFs. Since, then many independent ETF firms have eliminated funds, with some firms closing shop completely. However, PowerShares is definitely the largest ETF company to shut down funds and it’s shocking to see it joining this crew.

With 135 ETFs holding $25.8 billion in assets under management as of March 31, PowerShares was one of the four main ETF companies, along with State Street Global Advisors, iShares and Vanguard Group. According to the company, the affected funds represent less than 1% of PowerShares’ total assets.

Obviously, the industry made a decision in 2006 and 2007 to throw a lot of portfolio ideas against the wall to see what stuck. Some were offbeat, but interesting concepts. Some were just stupid. But, when investors feel flush they are willing to take a chance on interesting ideas. Of course, most people now eye investment products with suspicion and aren’t willing to trust Wall Street further than they can throw it.

Part of the problem is the overall economy and market conditions. Most investors are still shell shocked from seeing how the market’s crash decimated their nest eggs. They’re currently debating whether to pull their money out of the market completely or leave what’s left alone and hope for some bounceback. That’s assuming they still have a job. As more people lose their jobs, or worry about such, they are more likely to liquidate their investments than make new deposits. And the few that are willing to make new deposits are looking for the safest, most stable funds. Some of these ETFs probably could have survived in a more accepting market environment. But today investors sure don’t have any desire or patience to experiment with an offbeat portfolio idea like the PowerShares Dynamic Hardware & Consumer Electronics Portfolio (PHW), one of the funds due to close.

Here is the list of funds to close

* PowerShares Dynamic Aggressive Growth Portfolio (PGZ)
* PowerShares Dynamic Asia Pacific Portfolio (PUA)
*PowerShares Dynamic Deep Value Portfolio (PVM)
* PowerShares Dynamic Europe Portfolio (PEH)
* PowerShares FTSE RAFI Asia Pacific ex-Japan Small-Mid Portfolio (PDQ)
* PowerShares FTSE RAFI Basic Materials Sector Portfolio (PRFM)
* PowerShares FTSE RAFI Consumer Goods Sector Portfolio (PRFG)
* PowerShares FTSE RAFI Consumer Services Sector Portfolio (PRFS)
* PowerShares FTSE RAFI Energy Sector Portfolio (PRFE)
* PowerShares FTSE RAFI Europe Small-Mid Portfolio (PWD)
* PowerShares FTSE RAFI Financials Sector Portfolio (PRFF)
* PowerShares FTSE RAFI Health Care Sector Portfolio (PRFH)
* PowerShares FTSE RAFI Industrials Sector Portfolio (PRFN)
* PowerShares FTSE RAFI International Real Estate Portfolio (PRY)
* PowerShares FTSE RAFI Telecommunications & Technology Sector Portfolio (PRFQ)
* PowerShares FTSE RAFI Utilities Sector Portfolio (PRFU)
* PowerShares High Growth Rate Dividend Achievers Portfolio (PHJ)
* PowerShares International Listed Private Equity Portfolio (PFP)

Personally, I’ll be sad to see the retirement of the ticker symbols PDQ, which I always thought of as Pretty Damn Quick, and PUA, the abbreviation for Pick-Up Artist.

Next week, the funds will begin the process of liquidating their respective portfolios. According to the press release, this process will cause each fund’s holdings to deviate from the securities included in its underlying index and each fund to increase its cash holdings, which may lead to increased tracking error. Shareholders may sell their holdings prior to May 19. Shareholders of record on the close of business May 18 will receive cash equal to the amount of the net asset value of their shares as of May 22, which will include any capital gains and dividends, in the cash portion of their brokerage accounts.

Face to Face with PowerShares’ Bruce Bond

Recently, I had the chance to speak with Bruce Bond, the president and chief executive officer of Invesco PowerShares Capital Management, to get his thoughts on major issues in the ETF market today. Since starting out with just two ETFs in 2003, PowerShares has become the ETF industry’s second-largest sponsor in terms of number of funds. Currently, PowerShares is the only ETF provider to offer and actively-managed ETF.

Q: What do you think of the consolidation going on in the ETF industry?

Bond: Consolidation is a natural process of a rapidly growing industry. I’m not surprised by that. It’s actually a healthy thing. Investors are savvy about what they want to participate in. It shows it’s a difficult business to attract assets in and it’s not just as if you can bring anything out and it will sell. You need distribution, marketing and the underlying investment plan to be a sustainable idea.

It’s a natural cleansing of the industry. Investors vote with their dollars and non-feasible concepts just won’t work. It’s a serious and very challenging business.

Q: How do you think ETFs will fare after this bear market?

Bond: I think the ETF will come out of the current environment doing exceptionally well. I believe they have proved to be a very effective investing tool for investors during this market cycle. Investor’s s use of ETFs in this market is establishing the ETF going forward as a mainline investment tool.

Q: What does the near future hold for actively managed funds?

Bond: They tell the same story as Index-based ETFs about flexibility, liquidity, and transparency. And market conditions like this will make them shine ever brighter. Just like it took the SPDR a long time to get traction, it will take the actively-managed ETF a while to get traction.