Invesco Trimark turns on its PowerShares

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The newest products seeking to capitalize on the buzz surrounding exchange-traded funds arrived today from Invesco Trimark Ltd. as the company launched the first phase of its PowerShares suite of funds.

To be perfectly clear, the eight new PowerShares funds are not ETFs. They're conventional open-end mutual funds that are part of Invesco Trimark Corporate Class Inc., bringing the total number of share classes in that corporate structure to 38.

The ETF connection is that six of the eight new PowerShares Funds hold U.S.-listed ETFs as their underlying assets. These ETFs are managed by another subsidiary of Invesco Ltd. (IVZ), Invesco Trimark's Atlanta-based parent.

Of the funds that hold ETFs, there's one devoted to emerging markets, another to China, and four others with specialty mandates in agriculture, clean energy, gold and water industries respectively.

In addition, there are two PowerShares funds -- PowerShares FTSI RAFI Canadian Fundamental Index Class and PowerShares Canadian Dividend Index Class -- that employ quantitative securities-selection techniques and invest directly in Canadian equities.

Because of Invesco Trimark's piggy-backing on its corporate affiliate, the firm was able to repackage the six ETFs by keeping only a slight mark-up of five basis points for itself. However, because of the 1% trailer fee it will pay to commissioned advisors, the management fees charged for the front-end-load Series A will be more than double that of the underlying ETF. (There is no deferred sales charge (DSC) option, which in itself is a departure for Invesco Trimark from its prevailing pricing structure for its retail funds.)

The combination of the underlying ETF fee and the Series A management fee of 1.05% will bring the combined costs to between 1.65% and 1.90%, depending on the fund. (See table.) In addition, the mutual funds will be charged variable operating expenses and taxes.

	PowerShares mutual fund fees
	PowerShares fund	Underlying ETF fee	Series A fee	Total
	FTSE RAFI Emerging Markets	0.85	1.05	1.90
	Golden Dragon China	0.50	1.05	1.65
	Global Agriculture	0.75	1.05	1.80
	Global Clean Energy	0.75	1.05	1.80
	Global Gold and Precious Metals	0.75	1.05	1.80
	Global Water	0.75	1.05	1.80
	Source: Morningstar Canada; Invesco Trimark Ltd.

"We believe in the value of advice," Invesco Trimark president Peter Intraligi told Morningstar when asked about the differences in pricing between the mutual funds and their underlying ETFs. "The value of this advice we deem to be 100 basis points (one percentage point)." For Series F, which pays no commissions or trailer fees and is designed for fee-based accounts, the management fee charged by Invesco Trimark is only 0.05%.

The six ETFs-based mutual funds and their respective underlying holdings, are:

• PowerShares FTSE RAFI Emerging Markets Fundamental Class, which will invest in shares of PowerShares FTSE RAFI Emerging Markets (PXH);



• PowerShares Golden Dragon China Class, investing in PowerShares Golden Dragon Halter USX China (PGJ);



• PowerShares Global Agriculture Class, which will hold shares of PowerShares Global Agriculture (PAGG);



• PowerShares Global Gold and Precious Metals Class, holding PowerShares Global Gold and Precious Metals (PSAU);



• PowerShares Global Water Class, holding PowerShares Global Water (PIO);



• PowerShares Global Clean Energy Class, holding PowerShares Global Clean Energy (PBD).

Of the two non-ETF offerings among the PowerShares mutual funds, PowerShares FTSI RAFI Canadian Fundamental Index becomes the third fund in Canada to be based on the FTSE RAFI Canada Index, which is maintained by the London-based FTSE Group and California-based Research Affiliates LLC.

The PowerShares fund joins Claymore Canadian Fundamental Index ETF -- which remains the only ETF based on the RAFI Canadian index -- and Pro FTSE RAFI Canadian Index, sponsored by Oakville, Ont.-based Pro-Financial Asset Management Inc.

The Common Units of the Claymore fund, charging a 0.65% management fee that also covers most other costs other than taxes, remains the low-cost provider of the three for self-directed investors. The estimated management expense ratio of 0.68% for Series F of the PowerShares fund is very comparable to that of the Claymore ETF, but the PowerShares Series F is restricted to investors who enter into a fee-based arrangement with a full-service advisor.

By comparison, the PowerShares fund's management fee is 1.55% for Series A, and the management fee for Class A of Pro-Financial's fund is 1.60%. Claymore also has an Advisor Class which pays advisors a 0.75% trailer fee, and whose management fee is correspondingly higher.

Rounding out the new PowerShares offerings is PowerShares Canadian Dividend Index Class, whose objective is to invest in Canadian companies that have had stable or increasing regular dividend payouts for the past five or more consecutive years. The fund is based on the Indxis Select Canadian Dividend Index maintained by New York-based Indxis Inc. The management fee for Series A of the PowerShares fund is 1.50%.

Though not all of the new PowerShares are ETF-based, all of them fit with Invesco Trimark's theme of "intelligent indexing." John Ciampaglia, senior vice-president of product development, says the PowerShares' investment methodologies pick stocks and weight them according to their investment merits. This sets them apart from the conventional practice of basing index components and their weightings on market capitalization.

Not yet approved for sale is PowerShares India Class, for which only a preliminary prospectus has been filed. When launched, subject to regulatory approval, the fund will invest in shares of PowerShares India (PIN).

There's much more to come, according to Invesco Trimark's Intraligi. "This is just the first part of the launch," Intraligi told Morningstar, adding that the firm will be looking to add other ETF-based mutual funds that complement the company's current offerings.