ETF: PowerShares Active AlphaQ Fund
Date Launched: April 11, 2008
PQY is an actively-managed ETF that invests at least 95% of its assets in 50 Nasdaq-listed securities based on a methodology which involves rating companies with market caps greater than $500 million and ranking them using AER Advisors’ proprietary “NOW” ranking system based on earnings growth, valuations and money flow. The portfolio managers then narrow their universe down to the 100 largest Nasdaq-listed Global Market Securities and then go on to hold 50 of those stocks. The goal of the fund is to achieve long-term capital appreciation and outperform the Nasdaq 100 Index.
David O’Leary, AER Advisors Inc.: Mr. O’Leary has served as Chairman and Chief Executive Officer of Alpha Equity Research for the past 14 years, as well as the Chairman and Chief Investment Officer of AER Advisors. David has been in the investment business for more than 35 years.
Expense Ratio: 0.75%
Average Bid-Ask Ratio: 0.24%
Average Volume: 2,087 shares
What’s special about it?
1. PQY was one of the four Active ETFs launched by PowerShares on April 11, 2008 that were the first Active ETFs on the market, that still live on. (The very first launch was by Bear Stearns, but that fund went down with the company)
2. PQY is essentially a quant-driven equity fund, and portfolio decisions made by the managers are dependent on the factors that go into the “NOW” model. The fund tries to remain equally weighted, holding 2% in each stock and rebalancing when a position exceeds 3%.
3. While AER performs the ranking methodology process on a weekly basis, the advisors have discretion on when they can perform trades or how frequently they want to refresh the model.
4. You can expect ETF returns to stick very closely to those of the Nasdaq 100 Index, as the correlation between the two is 0.95.
1. If you believe in quantitative strategies, then this is a good choice, as the fund basically follows quantitative screens.
2. Following its strategy, PQY sticks largely to mid-large cap names, with more than 80% of the fund allocated to large-cap growth and mid-cap growth stocks.
1. After its 22-month existence, PQY's market cap is still only a paltry $4.36 million. The lack of investor interest after being on the market for so long is definitely a negative; if it continues, PowerShares may well have to pull PQY off the market. The low daily trading volume doesn’t help it’s cause.
2. Restricting the investment universe to Nasdaq-listed securities will limit the spectrum of opportunities available to the portfolio managers as they exclude stocks trading on other markets.
3. Investing in individual stocks does bring stock-specific risk into play, though holding a portfolio of 50 stocks should reduce that risk significantly.
Performance since inception vs. Nasdaq 100: