Creating what may be a new product category,
Invesco PowerShares Capital Management LLC has launched three exchange traded funds that invest solely in other ETFs.
The funds — the PowerShares Autonomic Balanced NFA Global Asset Portfolio, PowerShares Autonomic Balanced Growth NFA Global Asset Portfolio and PowerShares Autonomic Growth NFA Global Asset Portfolio — are each pegged to an index of ETFs maintained by New Frontier Advisors LLC of Boston.
"The ETFs are well diversified and very global in nature," Richard Michaud, president and chief investment officer of New Frontier Advisors, said about the indexes. "These are core strategies."
But critics say that the ETFs may have a hard time finding an audience.
"I like to have more control over the asset mix," said Theodore J. Feight, president of Creative Financial Design, a financial advisory firm in Lansing, Mich., which manages $25 million in assets.
Adviser Richard Romey said that, from an adviser's point of view, there just isn't that much need for them. "In general, it's a concept I'm not excited about," he said.
Mr. Romey is the president of ETF Portfolio Solutions Inc., an Overland Park, Kan.-based advisory firm with $40 million under management.
The sentiment about the new ETF products may mean trouble for
Invesco PowerShares of Wheaton, Ill.
"Their whole business is serving financial advisers," said Matt Hougan, editor of IndexUniverse .com of New York. "An ETF-of-ETFs does the work of financial advisers."
The price is relatively high. Including the cost of the underlying ETFs, the three ETF-of-ETFs will have expense ratios that run from about 0.75% to 0.86%, according to their prospectuses.
The Vanguard Group Inc. of Malvern, Pa., charges just 0.21% for its life cycle funds, all of which invest in the company's index funds.
Of course, the three ETF-of-ETFs aren't life cycle funds. The asset mix of each ETF-of-ETFs isn't intended to change over time.
The PowerShares Autonomic Balanced NFA Global Asset Portfolio covers a combination of asset classes designed to maximize long-term returns for a risk profile that includes about 60% equities and 40% taxable fixed-income.
The PowerShares Autonomic Balanced Growth NFA Global Asset Portfolio covers a combination of asset classes designed to maximize long-term returns for a risk profile that includes about 75% equities and 25% taxable fixed-income.
And the PowerShares Autonomic Growth NFA Global Asset Portfolio covers a combination of asset classes designed to maximize long-term returns for a risk profile that includes about 90% equities and 10% taxable fixed-income.
They are better than life cycle funds, which offer a one-size-fits-all solution, Mr. Michaud said.
If an ETF-of-ETFs is the core of an investor's portfolio, an adviser can choose investments to build around it, based on the client's needs, he said.
Some advisers may eventually warm to the concept, said Jim Lowell, the Needham, Mass.-based editor of Forbes ETF Advisor.
"For some investment advisers ... who aren't investment strategists, and don't want to take the time to become one, this is an attractive idea," he said.
For it to become a profitable one, however,
Invesco PowerShares will have to put some marketing muscle behind it, because "there are more and more ETFs chasing fewer and fewer dollars," Mr. Lowell said.
As a result, the industry will probably wait and see what success, if any,
Invesco PowerShares has before rushing to market with other ETF-of-ETFs, Mr. Hougan said.
E-mail David Hoffman at [email protected].
