A "New Breed" of ETFs
03/31/2006 12:00 am EST
"We have added a new and aggressive model portfolio to our service called the New Venture Portfolio, which is made up of innovative exchange traded funds from Powershares," notes Carlton Delfeld. Here, he looks at this "new breed of ETFs."
"All ETFs track a specific index and offer investors the advantages of lower costs, tax efficiency, and some degree of diversification. When I started Chartwell Advisors in 2002 to specialize in ETFs, little did I imagine the current variety of ETFs. Indeed, a new breed of ETFs is the Powershares family. Rather than follow traditional market-cap weighting theory, they have built indexes based on intelligent models.
"In short order, Powershares has rolled out a flurry of forward-looking ETFs, focused on sectors such as biotech, water, clean energy, nanotech, aerospace, media, and energy. Its portfolios have a slant towards small-cap opportunities and comes as close as possible to an ETF venture capital portfolio.
"One innovative product launched last year is the Powershares Water Resources (PHO ASE), that tracks the Palisades Water Index made up of companies in the water business such as treatment, potable water, technology, and services. It is made up of 35 companies- 65% of the companies are small cap. It has an expense ration of 0.60%. The Palisades Water Index was up an average of 18.55% over the last five years versus a 3% loss for the S&P 500 Index.
"Powershares also has two newer ETFs that we have included in our model portfolios last year. The first is the Powershares Lux Nanotech (PXN ASE). Nanotechnology is the science of using individual atoms and molecules to create computer chips and other devices thousands of times smaller than current technologies permit. It represents new technologies that juggle individual atoms.
"Nanotechnology transcends industry boundaries and research groups estimate that $3.8 billion was spent on research worldwide last year alone. The key goal is product innovation. The ETF has 26 securities with the largest representing 6% of the total. 65% of the companies are small cap and it has an annual expense ration of 0.60%.