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PowerShares — one of the biggest global names in exchange-traded funds — has arrived on the Toronto Stock Exchange.
The first two ETFs, which opened for trading today, are PowerShares 1-5 Year Laddered Investment Grade Corporate Bond Index (PSB/TSX) and PowerShares Ultra DLUX Long Term Government Bond Index (PGL).
Four others are poised for liftoff in the first launch phase of the new ETF family, having also received final regulatory approval. PowerShares Canadian Dividend Index, PowerShares Canadian Preferred Share Index and PowerShares QQQ (CAD Hedged) Index are scheduled to start trading tomorrow. They’ll be followed sometime next week by a more specialized fixed-income mandate, PowerShares Fundamental High Yield Corporate Bond (CAD Hedged) Index.
The manager of record for the first two PowerShares ETFs and many more to come is Toronto-based Invesco Trimark Ltd., best known as a major independent mutual-fund company that distributes to third-party brokers and dealers. Invesco Trimark and its U.S.-based sub-advisor Invesco PowerShares Capital Management LLC are both subsidiaries of Atlanta-based Invesco Ltd. IVZ.
PowerShares ETFs aren’t new for many Canadian investors. Invesco Trimark estimates that Canadians currently hold $875 million in assets of U.S.-listed PowerShares ETFs. The difference is that Canadians will now be able to invest in Canadian-domiciled and listed PowerShares ETFs that trade in Canadian dollars.
As PowerShares expands its Canadian offerings, you can expect to continue to see a combination of “made-in-Canada” mandates along with others that are based on U.S.-listed ETFs.
Along with today’s two new fixed-income ETFs, those in the made-in-Canada camp include the Canadian-dividend and Canadian-preferred mandates. They will replicate the Indxis Select Canadian Dividend Index and Indxis Select Canadian Preferred Share Dividend Index respectively.
Of the mandates imported from the U.S., the very first is PowerShares QQQ (CAD Hedged) Index. It’s a Canadianized version of the US$22.2-billion PowerShares QQQ QQQ, one of the flagship PowerShares offerings.
Because of its currency hedging, the ETF will provide exposure to the technology-dominated NASDAQ 100 Index, but without the risk of U.S.-dollar depreciation. With a management fee of 0.32%, it takes over from BMO NASDAQ 100 Equity Hedged CAD Index ZQQ, undercutting it by five basis points. Not surprisingly, the NASDAQ-listed QQQ is cheaper still, with a management expense ratio of 20 basis points.
Overall, PowerShares won’t necessarily be the low-cost provider, but it will be reasonably competitive on fees. On an “apples-to-apples basis, says PowerShares Canada vice-president Michael Cooke, fees on PowerShares ETFs will be “at or below the market average.”
For some mandates that employ exclusive methodologies, fees will be higher. For example, PowerShares Fundamental High Yield Corporate Bond (CAD Hedged) Index will be based on a proprietary index created by California-based Research Affiliates. The management fee for this ETF is 0.65%.
That’s relatively high for fixed-income ETFs in general. But it’s right in line with other ETFs in the High Yield Fixed Income category, and much cheaper than what is typical for mutual funds in this asset class.
Of the two fixed-income ETFs now available, the corporate-bond ETF seeks to replicate the performance of the DEX Investment Grade 1-5 Year Laddered Corporate Bond Index. The index is composed of Canadian investment-grade bonds rated BBB or higher, and is divided into five buckets with staggered maturities ranging from one to five years.
The long-term bond ETF seeks to replicate the performance of the DEX Ultra DLUX Long Government Bond Index. This is a market-capitalization-weighted index of high-quality federal and provincial issues, as well as bonds of supranational entities of which Canada is a member country. The index components are denominated in Canadian dollars and their credit ratings are A or higher.
Both fixed-income ETFs will make monthly distributions. The management fee for each of them is 0.25%.As is normal for equity funds, the management fees for the dividend ETF and preferred ETF will be higher, at 0.5% and 0.45% respectively.
ETF name
Ticker
Benchmark
Mgmt
Fee
PowerShares 1-5 Year Laddered
Investment Grade Corporate Bond
Index
PSB
DEX Investment Grade 1-5 Year
Laddered Corporate Bond Index
0.25%
PowerShares Ultra DLUX Long Term
Government Bond Index
PGL
DEX Ultra DLUX Long Government
Bond Index
0.25%
PowerShares Canadian Dividend
Index
PDC
Indxis Select Canadian Dividend Index
0.50%
PowerShares Canadian Preferred Share Index
PPS
Indxis Select Canadian Preferred
Share Dividend Index
0.45%
PowerShares QQQ (CAD Hedged)
Index
QQC
NASDAQ 100 Index
0.32%
PowerShares Fundamental High Yield
Corporate Bond (CAD Hedged) Index
RAFI High Yield Bond CAD Hedged Index
0.65%
Source: Invesco Trimark
This week’s launch of the first PowerShares ETFs follows the introduction by Invesco Trimark, beginning in November 2009, of the PowerShares brand of mutual funds, many of which have U.S.-listed PowerShares ETFs as their underlying holdings.
There now are a total of 20 PowerShares mutual funds, with assets totalling $1.2 billion. Ten of them are based on U.S.-listed PowerShares ETFs. PowerShares mutual funds can be distributed by mutual fund dealers as well as brokers, while ETFs can be purchased only through brokerages that are registered to sell exchange-traded securities.
There is only one class of PowerShares ETF units, and as is common for ETFs there is no bundled compensation for brokers in the form of trailer fees. Cooke of PowerShares Canada, a division of Invesco Trimark, says that between the PowerShares mutual funds and the ETFs, a full range of compensation alternatives is available to Canadian financial advisors.