It's official: PowerShares got the go-ahead from the Securities and Exchange Commission to launch the first actively managed exchange-traded fund. Technically, there will be four ETFs (they have not yet begun trading). Here are the proposed names:
• PowerShares Active AlphaQ Fund: seeks to outperform the Nasdaq 100 index with a portfolio of 50 Nasdaq-listed securities.
• PowerShares Active Alpha MultiCap Fund: seeks to outperform the S&P 500 with a portfolio of 50 securities.
• PowerShares Active Mega-Cap Fund: seeks to outperform the Russell Top 200 by investing in mega-cap stocks.
• PowerShares Active Low Duration Fund: seeks to outperform the Lehman Brothers 1-3 Year U.S. Treasury Index by investing in a portfolio of U.S. government and corporate bonds.
Although the funds all aim to beat a specific index, the key here is that they don't track or replicate a benchmark, as traditional ETFs do. The funds' portfolio holdings will be disclosed daily on the PowerShares website.
Boston Globe columnist Steven Syre points out that active management "blunts some of the basic advantages of ETFs." One such is their rock-bottom costs, which will have to increase to pay management and trading expenses, Syre says.
The first two PowerShares funds, which will be subadvised by AER Advisors, will use a proprietary ranking system to select stocks, according to PowerShares. Invesco will subadvise the remaining two. The Mega-Cap Fund will use quantitative models, and the Low Duration Fund will use "actively managed top-down portfolio construction and bottom-up security selection," the company says.