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Invesco Powershares – Most Innovative North American ETF Provider


Invesco Powershares is the fourth largest ETF provider in the world with USD100 billion under management. The firm is one of the original providers of ETFs in the US and differentiated itself by creating what it called at the time, intelligent indexing or enhanced indexing, terms which are now replaced by the popular term, smart beta.

Dan Draper (pictured), Managing Director of Global ETFs, says: "We were the first firm with a smart beta multi factor ETF which we launched 13 years ago and we are now widely recognised as the leader in the smart beta sector, with 92 smart beta ETFs covering all the major asset classes from equities to fixed income to alternatives, which are anything from commodities to private equity to hedge funds."

In the last 12 months of 2015 smart beta ETF assets increased 11 per cent year on year end so that at the end of January 2016, there were 480 smart beta ETFs USD240 billion under management.

"Over the last three years smart beta ETF assets have grown at a 25 per cent compounded annual growth rate whereas traditional ETFs have grown at 11 per cent," Draper says. The figures are predominantly coming from the US, but Draper reports that smart beta is getting traction outside of the US.

"The big changes are in factor investing," he says. "It sits between active management and traditional beta, and now with more transparency and scale you are seeing portfolio managers and wealth advisers having more choice and combining smart beta with active strategies or traditional strategies."

He draws comparisons with hedge funds. "If you look at absolute return, the model of what many of the strategies hedge funds have done, be it long/short or global macro, the return distribution of those strategies is a form of selling volatility, which five or ten years ago was more difficult to do but now you are able to do that on an index basis."

The hedge fund model from a pricing perspective of 2 and 20 per cent and their onerous structure is increasingly challenged by ETFs, he says. "In the more commoditised parts of hedge funds and absolute strategies, we can do it at a lower cost with liquidity and transparency. Hedge funds will continue but smart beta ETFs will increasingly cannibalise the more commoditised areas of hedge funds. We might not be as dynamic but can we can harvest the risk factors."

Successful launches in this past year have been in currency hedged developed market equities, particularly in Europe and Japan with the Powershares S&P, Euro and dollar hedged low volatility products. "The currency hedging allows US investors to hedge the Euro risk but it is also a low volatility scheme offering a very effective screen."

"If you look at high correlation, low volatility does well when you have easing of monetary policy so it coincided well with the European Central Bank's QE programme, where we had not only a strengthening dollar but also the screen provided performance. We raised USD150 million in the first three months," Draper says.

Draper predicts that ETF growth will continue globally and also sees the increased integration of ETFs into portfolio planning. "They are tools with unique advantages for portfolio managers," he says. "The ETF epitomises the digital age we live in – we can customise information and outcomes and it will be the same with ETFs offering variety and customisation.

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