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PowerShares Cuts Fees on 6 ETFs

FactorShares rolls out three mining-oriented ETFs, and Schwab drafts an actively managed, MINT-like fund. Plus, the week's best- and worst-performing funds.

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On Nov. 28, PowerShares announced that it had cut expense ratios on six of its exchange-traded funds. The move was unexpected because up to now PowerShares had eschewed fee cuts, even where some of its funds had been meaningfully higher-priced than competitors.

Now, PowerShares has entered the pricing fray. The cuts focused on two areas: ETFs linked to fundamental indexes developed by Rob Arnott's Research Affiliates and factor-based funds.

What we find most intriguing is the extent to which the funds' prices were cut. In some cases, PowerShares reduced the investor fee by more than 40%.

Below are the six ETFs, with their new expense ratios (followed by their previous fees):

 PowerShares FTSE RAFI AsiaPac ex-Japan Port (PAF)--0.49% (0.80%)


             PowerShares FTSE RAFI Dev Markets ex-US (PXF)--0.45% (0.75%)
             PowerShares FTSE RAFI DevMkts exUS SmMid (PDN)--0.49% (0.75%)
             PowerShares FTSE RAFI Emerging Markets (PXH)--0.49% (0.85%)
            PowerShares S&P 500 High Quality (SPHQ)--0.29% (0.50%)
            PowerShares S&P Intl Dev High Quality (IDHQ)--0.45% (0.75%)

The fee cuts took effect on Nov. 21.

FactorShares Rolls Out 3 Mining ETFs
On Nov. 29, FactorShares debuted three passively managed ETFs that hold companies in narrow slices of the mining world, including diamonds and gemstones, silver, and mining services.

Launched under FactorShares' PureFunds brand, the three new ETFs, which each charge 0.69%, came out to virtually no fanfare. They track ISE indexes that hold firms both overseas and in the United States.

The three new ETFs:

            PureFunds ISE Diamond/Gemstone ETF (GEMS)            
            PureFunds ISE Mining Service ETF (MSXX)
            PureFunds ISE Junior Silver ETF (SILJ) 

GEMS, which tracks an index of 20 to 30 securities that aims to reflect the performance of companies in the gemstone industry, has among its top holdings large, well-known global players in the diamond and gemstone space, including Signet Jewelers (SIG), Chow Tai Fook Jewellery Group, Harry Winston (HWD),  BHP Billiton (BHP), and Petra Diamonds. SILJ, which tracks an index of 20 to 30 securities that aims to reflect the performance of firms in the silver industry, holds small-cap silver players such as Endeavour Silver (EXK), McEwen Mining (MUX), Fortuna Silver Mines (FSM), and Bear Creek Mining.

Finally, the mining service ETF tracks an index of 30 to 40 stocks that aims to reflect the performance of firms that provide equipment, consulting, and other services to the mining and mineral exploration and extraction industry. MSXX's top holdings are players such as Atlas Copco, China Coal Energy, and  Joy Global (JOY).

Fact sheets for the three new funds can be found at

Schwab Files for Ultrashort Duration Bond ETF
On Nov. 21,  Charles Schwab (SCHW) submitted paperwork with U.S. regulators seeking permission to create an ultrashort duration bond ETF that would be yet another clone of the very popular  PIMCO Enhanched Short Maturity Strategy ETF (MINT).

The proposed actively managed Schwab Active Short Duration Income ETF would hold short-term, investment-grade, fixed-income securities from U.S. and foreign issuers. The portfolio duration generally would be less than six months, with a weighted average portfolio maturity of less than 12 months.

Why an ultrashort duration bond ETF? With stricter money market fund rules artificially pushing down yields in short, high-quality debts, investors are seeing that there's value just beyond money markets' credit quality and duration limits. ETFs like MINT have sought to exploit that gap, and it has spawned imitators. Recently,
 Northern Trust (NTRS) rolled out its own quasi-MINT product, FlexShares Ready Access Variable Income Fund (RAVI), and we believe that  Legg Mason (LM) is close to launching its own MINT clone that would be named Legg Mason Enhanced Western Asset Ultra-Short Duration ETF.  State Street (STT) and iShares also have similar products in registration that would be named SPDR SSgA Ultra Short Term Bond ETF and iShares Ultrashort Duration Bond Fund NEAR, respectively.

Schwab did not detail a ticker symbol or expense ratio for its proposed ETF.

ProShares Proposes Listed Private Equity ETF
On Nov. 28, ProShares filed with the SEC for permission to create a passively managed ETF that would seek to generate the performance of a basket of listed private equity firms.

The proposed ETF, ProShares Private Equity--Listed, would track an index containing up to 30 listed private equity companies. Firms eligible for the index would need to devote at least 80% of their assets to private equity. Business development companies (BDCs) would be eligible for the index as well. That would mean the fund might compete with a small, thinly traded exchange-traded note issued by UBS known as UBS E-TRACS linked to the Wells Fargo Business Development Company Index ETN (BDCS).

The proposed fund's index would be structured based on a capped float-adjusted, modified market-capitalization-weighted methodology. ProShares did not provide a ticker symbol or expense ratio.


AdvisorShares Drafts Gold ETFs
On Nov. 27, AdvisorShares submitted paperwork with U.S. regulators seeking permission to create four gold-oriented ETFs whose management would make decisions based on gold guru Dennis Gartman.

Three of the four proposed actively managed ETFs would seek to use specific currencies to invest assets in the gold market. Gartman Gold/Euro ETF GEUR would use the euro to invest in the gold market, while Gartman Gold/British Pound ETF GGBP would take long positions in gold using the British pound sterling. Gartman Gold/Yen ETF GYEN would use the Japanese yen to invest in gold.

In all three cases, subadvisor Treesdale Partners would evaluate the gold market by using information from the daily newsletter The Gartman Letter. The long positions in the international gold market would be held through various instruments, including exchange-traded gold futures, gold forward contracts, or swaps and other exchange-traded instruments.

Finally, the fourth proposed fund, AdvisorShares International Gold ETF GLDE, would be a fund of funds ETF that would take long positions in each of the three ETFs mentioned above. This fund would gain additional exposure to the international gold market by holding unaffiliated products as well, including closed-end funds or other exchange-traded products.

AdvisorShares did not offer up expense ratios for the proposed ETFs.

ProShares Files for Hedged Junk-Bond ETF
On Nov. 26, ProShares filed with the SEC for permission to create a passively managed ETF that would hold high-yield debt and also short U.S. Treasuries as a hedge.

The proposed ProShares High Yield-Interest Rate Hedged ETF, which would track an unspecified index, is the latest entrant in what appears to be an emerging theme among ETF product planners. Several other ETF providers recently have submitted paperwork to the SEC seeking approval to roll out similarly structured funds that would take long positions in below-investment-grade debt, which also is known as high-yield or junk debt.

One such proposed ETF was drafted a few weeks ago by First Trust, which proposed the First Trust High Yield Long/Short ETF, a 130/30 high-yield ETF that would take long positions in junk debt and short positions in Treasuries, among other kinds of debt securities. Another proposal came from Van Eck, which proposed the Market Vectors High Yield/Treasury Bond ETF, which would hold junk debt and short Treasuries to hedge against changes in interest rates.

Why are so many ETF providers jumping on this bandwagon? The best way to think about it is that issuers are attempting to blunt the effect of interest-rate risk on these portfolios, since rising rates obviously hurt bond prices. By stripping away interest-rate risk (or at least as much of it as possible), providers would bring to market products that would generate income but also would be exposed most to credit risk.

ProShares did not detail an expense ratio or ticker symbol for the proposed ETF.

ETF Performance Last Week
Best Performing

Clean energy-related ETFs did well last week after two important players in the sector,  JA Solar (JASO) and  Yingli Green Energy (YGE), reported better-than-expected results and also told investors that they expect to see growing demand from China for their products. India equity ETFs also did well after Moody's reiterated its stable view on the country's sovereign debt rating and affirmed its Baa3 credit rating. Also driving India stocks was a rosy report from Goldman Sachs containing bullish GDP growth projections in India during the next several years.

  - source: Morningstar Analysts

Worst Performing
Natural gas-themed exchange-traded products topped the week's list of worst performers amid unseasonably warm weather, a report from the Energy Information Administration about higher gas inventories, and investor concerns that the mild weather will continue. Also feeling the pain were volatility ETFs and ETNs, which slid after U.S. markets rose for the week, thus reducing market volatility.

Two single-country ETFs also did particularly poorly. The Egypt ETF slid on political unrest, while the Greece ETF struggled even following a long-anticipated deal by international lenders to reduce Greece's debt to 124% of its GDP by 2020 and to a point below 110% of its GDP in 2022. Driving the weakness were Greece's bank stocks, which sagged after investors were concerned that the debt buyback program might hit the banks' capital.

  - source: Morningstar Analysts

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Robert Goldsborough does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.