Already the first to market with actively managed stock exchange-traded funds, Invesco (NYSE:IVZ) PowerShares Capital Management has filed to launch a similar portfolio focused on real estate markets.
In an exemptive relief filing dated Oct. 31, PowerShares is asking for the Securities and Exchange Commission to approve its plan to offer the Active U.S. Real Estate Fund. The new ETF's proposed ticker symbol would be PSR and trade on the NYSE Arca exchange. (See request here.)
The institutional money management arm of parent Invesco would subadvise the new fund, using quantitative models to select stocks. Its aim would be to outperform the FTSE NAREIT Equity REITs Index.
According to the filing, the fund's portfolio will be disclosed on a daily basis.
The ETF's annual expense ratio is expected to be around 0.80%. Its lead manager is listed as Joe Rodriguez Jr., who also serves as the head of real estate securities for Invesco's institutional real estate management team.
Invesco recently announced plans to come out with a mutual fund using all PowerShares ETFs. In an interview last week, PowerShares' Ed McRedmond said that the ETF provider was exploring more ways to leverage the relationship. (See related story here.)
Invesco is already subadvising one of PowerShares' three actively managed stock portfolios. That's the PowerShares Active MegaCap Fund (NYSEArca: PMA), considered the most similar to a truly actively managed stock ETF on the market. (See related story here.)
Unlike the other actively managed funds—which could be considered as the latest in quantitative methodologies—PMA can trade as its managers deem necessary. That's different from the other active PowerShares ETFs, which can only trade by prospectus once a week in limited quantities. Those two other funds are subadvised by AER Advisors.
With all of the active ETFs so far from PowerShares, portfolio changes show up the next day before trading takes place. As such, creations and redemptions are made with a basket of securities that are similar to -- but not identical to -- the actual portfolio.
In addition, there is a small cash component to true-up the value of the creation/redemption basket with the value of the portfolio holdings.
The new active real estate fund is using much the same process. "The Fund's portfolio holdings will be disclosed on its website daily after the close of trading on the NYSE Arca and prior to the opening of trading on the NYSE Arca on the following day," the filing said.
Most of PSR's investments are expected to be in REITs, although it can invest in real estate operating companies as well. That means its managers can select stocks of non-REITs with large real estate holdings that don't have to distribute earnings to shareholders. In other words, they're free to plow profits back into their businesses.
The filing says that PSR's portfolio will emphasize attractively priced REITs and primarily, but not exclusively, stocks in its underlying benchmark. Another interesting wrinkle is that the fund's managers, while expected to remain fully invested at most times, are being given the flexibility to temporarily invest heavily in cash under extreme market conditions.
Its quantitative-based selection process and its resulting portfolios are expected to be updated on a monthly basis.