PowerShares Goes Nuclear

By Murray Coleman

It wasn't the big news everyone's been expecting, but PowerShares launched three new exchange-traded funds on Thursday that take unique twists on well-known markets.

Of course, with Bear Stearns' (BSC) listing of the first active bond ETF, the next big hat to drop should be PowerShares' previously announced trio of active stock ETFs. The industry's ready for that to happen anytime now.

Still, the opening of trading for PowerShares Global Nuclear Energy Portfolio (PKN) and a pair of unique Nasdaq funds provide investors with some interesting alternatives in specific segments of the market that the broader active portfolios still won't reach.

Let's look at the newest PowerShares entries one at a time:

• PKN uses an underlying index that employs a hybrid weighting methodology. It equal weights companies included in two of its five main categories - primary construction and technology. In the three others -- technology (equipment and services), utilities and fuels -- names are market cap weighted, with individual weightings capped at 3%.

Segments also are given a set weighting. Reactors and construction each represent 15% of the total while utilities and tech make up 25% apiece. Meanwhile, fuels comprise 20% of the overall portfolio.

The selection criteria for securities in the underlying index includes requirements for industry participation, primary exchange listing, minimum capitalization (adjusted for free float), minimum price and minimum average daily trading volume.

The underlying index is provided by WNA Global Indexes, which was formed last year in partnership with the World Nuclear Association, an industry trade group.

It will join last summer's launch of Van Eck's Market Vectors Nuclear Energy ETF (NLR).

"Since 2001, nuclear power plants have achieved lower production costs than coal, natural gas and oil," said Bruce Bond, PowerShares' chief executive, in a March 25 statement anticipating the launch. "We believe higher oil prices, rising standards of living and demand for cleaner sources of energy are favorable trends powering worldwide growth for the nuclear energy industry."

According to the Nuclear Energy Institute, some 439 nuclear reactors operated around the world last year in 30 different countries. China and India are two countries expected to introduce new reactors in the future and several other emerging markets are reportedly looking to build their first reactors.

• The PowerShares FTSE Nasdaq Small Cap Portfolio (PQSC) invests in the smallest 10% of the broader FTSE Nasdaq Index. Its FTSE Nasdaq Small Cap Index is weighted by market capitalization sizes. It's adjusted annually, according to the fund's registration statement.
• The PowerShares NASDAQ Next-Q Portfolio (PNXQ) does just what its name implies. Its underlying index includes, by market cap weightings, the 50 securities next in line to replace any of the stocks in the Nasdaq 100.

That actually could be an interesting tweak to the popular PowerShares QQQ (QQQQ). Some market technicians complain that the old standard is just that - it represents old-line tech names and doesn't capture fresher and more growth-oriented tech firms.

• More on choosing the right ETF

Comments

[Lisa]

Has anyone back-tested the PowerShares NASDAQ Next-Q Portfolio (PNXQ)? It would be interesting to see the results.

[zawy]

How can PKN, which is supposed to be follwing an index, jump 100% this morning?