What Are PowerShares?
PowerShares is the branded name of a family of domestic and international exchange traded funds (ETFs) managed by the investment management company Invesco Ltd. One of the first popular index ETFs, the PowerShares QQQs, which tracks the Nasdaq 100 index, launched in 1999.
Founded in 2003, PowerShares ETFs trade like stocks on both U.S. and international stock exchanges, including the NASDAQ and NYSE Arca, and are intended to offer investors tax efficiency, transparency, flexibility, and broad exposure. As of June 4, 2018, all PowerShares ETFs were rebranded as Invesco ETFs.
- PowerShares is one of the world's largest and well-known ETF providers.
- Founded in the year 2003, PowerShares specializes in smart beta and actively managed ETF products, but was also a pioneer in passive indexed ETFs in the late 1990s and early 2000s.
- PowerShares is now known as Invesco ETFs, following Invesco's merger with Guggenheim ETFs.
While ETFs were originally designed to track a market index, PowerShares was part of a universe of ETFs designed to outperform market indexes. For this reason, the company refers to its ETFs as "next generation," "intelligent," or "value-added" ETFs. The company's broad categories of ETFs offer investors choices such as actively managed ETFs, ETFs focused on dividend-paying stocks, commodities, and fixed-income products.
Invesco is the largest provider of smart beta ETFs that actively target academically identified investment factors. A factor is a quantifiable characteristic that explains much of a stock’s risk-return profile. Six factors—low volatility, momentum, quality, value, small size, and dividend yield—are academically supported and have historically demonstrated outperformance across asset classes and geographies. Smart beta ETFs invest in stocks that exhibit tilts toward specific factors.
PowerShares grew its market share in the ETF category by offering investors both traditional passive and next-generation active ETF products. PowerShares was the largest part of Invesco’s ETF business and helped it become one of the five largest ETF providers, with assets of approximately $175 billion across more than 200 ETFs through March 2018.
In addition to its smart beta suite of ETFs, PowerShares offered market-cap-weighted ETFs designed to track index and stock sector performances, investment style-box ETFs, investment theme-based ETFs, risk-based ETFs as well as ETFs that tracked such alternative asset classes as currencies and real estate.
Invesco expanded its ETF offerings in February 2018 with the purchase of Guggenheim Investments’ ETF business. The Guggenheim acquisition added BulletShares fixed income and equal-weighted equity ETFs to Invesco’s ETF lineup.
Risks of PowerShares
While products offered by Invesco have been gaining greater acceptance among investors, they also carry specific smart beta risks. Most smart-beta ETFs have too short a track record to draw conclusions about their efficacy in real market conditions compared to hypothetical backtests.
Compared to traditional capitalization-weighted passive ETFs, the higher management fees assessed by smart beta ETFs could lead to a drag on performance. Some observers have noted that the proliferation of smart beta ETFs offering similar strategies could create some vehicles that lack the assets or liquidity to properly function as advertised.