The PowerShares Active US Real Estate Fund (PSR) is what you’d call the grandfather of actively-managed ETFs, relative to other funds in the space of course. PSR is the second oldest actively-managed ETF in the US, launched by PowerShares in Nov 2008 after its initial suite of 4 Active ETFs hit the market in April 2008. PSR celebrated its 2nd anniversary on November 20th, likely not much with much fanfare though because assets in PSR are still languishing in no-man’s land at about $20 million. That’s probably an asset base not large enough for it to be a profitable fund just yet for PowerShares but also not small enough to justify taking it off the shelves. And since PSR, PowerShares has not launched any more Active ETFs, presumably wanting to see whether its first five products in the space gain traction well enough.
PSR invests in securities of companies that are principally engaged in the US real estate market and are included in the FTSE NAREIT Equity REITs Index, which is also the fund’s main benchmark. Invesco Advisors is the advisor managing the fund with Joe V. Rodriguez, Jr. being the portfolio manager. Rodriguez is the head of real estate securities for Invesco Real Estate. In constructing the portfolio, the manager analyzes quantitative and statistical metric to identify attractively priced securities, with the evaluation process being conducted monthly.
As of Nov 19th, the SEC 30-day yield on the fund was 2.93% and the fund had a market cap of $19.9 million. The largest holdings in the fund as of that date were Simon Property Group Inc. (SPG) (12.4%), Public Storage (PSA) (6.73%) and Boston Properties Inc. (BXP) (6.23%), with the portfolio holding 50 securities in all. PSR’s annualized returns since inception have been 54.47%, which shouldn’t be surprising since the fund launched in the depths of the US real estate crisis, thereby “getting in” at the bottom. In comparison, in that timeframe, the FTSE NAREIT Equity REITs Index has returned 36.72% while the S&P500 has only returned 16.73%. That highlights some significant outperformance on the part of PSR, compared to the benchmark. The chart below shows a comparison of PSR against the largest REIT ETF in the US, the Vanguard REIT Index ETF (VNQ). PSR’s outperformance is also visible here, though this may not be an apples-to-apples comparison, because PSR focuses only on Equity REITs.
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At an expense ratio of 0.80%, PSR is PowerShares’ most expensive actively-managed ETF. For a very long time, PSR’s asset base was essentially stagnating around $10 million. However, the fund gained more traction in September as the fund size increased to $17 million and then to $20 million by the end of October. The fund has also done well at keeping its premium/discount on the fund’s NAV in check. In all of 2010, up till Sept 30th, there have been no instances when the premium or discount of the ETF share price exceeded 50 basis points or 0.5%.
Having built a good track record over the last 2 years, PSR might just be close to hitting a sweet spot with investors. Once the fund has a 3 year track record, it can get a Morningstar rating and that could really help it gain more traction, especially if the managers can keep up the fund’s strong performance.
Disclosure: No positions in above-mentioned names.
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