XMLV Invesco S&P MidCap Low Volatility ETF

PowerShares, one of the world’s biggest ETFs issuers, has long enjoyed a dominant position across a number of asset classes and segments in the ETF world. The firm’s ETFs often seek to outperform traditional benchmarks, or provide investors with access to new strategies or investment styles.  

The firm is again adding a number of products into the pipeline. In the past six months, PowerShares has launched the S&P 500 High Dividend ETF (SPHD), which targets high yield low volatility securities in the American market, and PowerShares S&P 500 Downside Hedged Portfolio (PHDG) which provide access to the broad S&P 500 with an implied volatility hedge.

Last month, the firm also rolled out two products with low-volatility strategies – S&P MidCap Low Volatility Portfolio ETF (XMLV) and S&P SmallCap Low Volatility Portfolio ETF (XSLV) (read: PowerShares Expands Low Volatility ETF Line-ups). 

However, this doesn’t appear to be the end of the firm’s new lineup as the company has introduced another filing to the market for the PowerShares Global Select Short Term Bond Portfolio. This latest SEC filing targets the global bond market with a focus on the short end of the yield curve.

While a great deal of important information – such as expense ratio or ticker symbol – was not available in the initial release, some key points were released in the filing. We have highlighted those below for investors, who may be looking for a new bond play from PowerShares should it pass regulatory hurdles:

Proposed Methodology

The proposed ETF looks to track the DB Global Dynamic Short Maturity Bond Index. The fund will generally invest 80% of its assets in public and private investment grade, short-term bonds that are denominated in U.S. dollars.

In terms of credit quality, the product looks to focus on BBB- or higher rated bonds from Fitch and S&P or Baa3 or higher from Moody’s. The remaining maturity of the securities should not be greater than 3 years.

How may it fit in a portfolio?

The product could be an interesting choice for investors seeking safe exposure to the fixed income market. This safety will largely be due to the low duration risk, although the investment grade holdings also help as well (read: Time for Inverse Bond ETFs?).

Both of these factors could come into play if the Fed looks to tighten anytime soon, or if investors see more corporate defaults in the near future. If either of these scenarios happen, this proposed bond ETF could be a beneficiary.

Still, investors should note that the low duration is likely to make this ETF a poor choice for income. Instead, the focus of this product should likely be the stability and its global offering which could stretch around the world.

Can it succeed?

There is still an appetite for these kinds of securities despite a couple of choices already in the space (read: 3 Excellent ETFs for Income Investors).

The most popular in the bunch is the Vanguard Short Term Bond ETF (BSV), which is a low cost product, charging only 11 bps in fees per year. The ETF zeroes in on the U.S. government, high-quality corporate, and investment-grade international dollar-denominated bonds having maturity of 1-5 years. The fund has amassed over $10 billion in AUM.

The next popular product in the space is the iShares Barclays 1-3 Year Credit Bond Fund (CSJ), which is a bit expensive at 20 bps a year. The fund targets the investment grade corporate debt and sovereign, supranational, local authority, and non-U.S. agency bonds that have a remaining maturity of at least one year and less than three years. The ETF has an impressive $9.9 billion in its asset base.

Beyond that is the iShares Barclays 1-3 Year Treasury Bond (SHY), which has roughly $7.4 billion in AUM. The fund focuses on Treasury bonds having maturities remaining between 1-3 years and a minimum $250 million in face value. This results in a product that has virtually no credit or interest rate risk for a low fee of 15 bps per year (see more ETFs in the Zacks ETF Center).

Given this, it is hard to say how the proposed PowerShares ETF will do in terms of investor interest. But if it can manage to generate a decent yield and stable returns with a lower expense ratio, it won’t too hard to see big inflows for this potentially popular ETF for those seeking a lower risk choice in the bond market (read: 3 Actively Managed Bond ETFs for Stability and Income).

Still, Power Shares’ product will have to clear a number of regulatory hurdles before reaching the market, so there could still be some time before it is available to trade, so we will have to see how the bond market is trading at the time of its eventual launch.

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VANGD-SHT TRM B (BSV): ETF Research Reports
 
ISHARS-BR 1-3CB (CSJ): ETF Research Reports
 
PWRSH-SP5 DHP (PHDG): ETF Research Reports
 
ISHARS-BR 1-3 (SHY): ETF Research Reports
 
PWRSH-SP5 HI DV (SPHD): ETF Research Reports
 
PWRSH-SP MC LVP (XMLV): ETF Research Reports
 
PWRSH-SP SC LVP (XSLV): ETF Research Reports
 
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