PowerShares has filed paperwork with the SEC for a “PowerShares Dividend Allocation Portfolio.” The PowerShares Dividend Allocation Portfolio (the “Fund”) is an actively managed exchange-traded fund (“ETF”) that seeks to achieve positive total returns in rising or falling markets that are not directly correlated to broad equity or fixed income market returns. They did not specify a trading symbol or expense ratio in the initial filing.
Principal Investment Strategies
The Fund seeks to achieve its investment objective by using a quantitative, rules-based strategy that is designed to provide returns that correspond to the performance of the S&P Dynamic Dividend Index (the “Benchmark”). The Fund, in accordance with its strategy allocation rules, will invest substantially all of its assets in a combination of (i) the 50 highest dividend-yielding equity securities that are contained in the S&P 500 Index and that are listed on either the New York Stock Exchange (“NYSE”) or the NASDAQ Stock Exchange (“NASDAQ”); (ii) CBOE Volatility Index (“VIX Index”) related instruments (such as listed VIX Index futures contracts on the S&P 500 VIX Short Term Futures Index (“VIX Futures Index”) or ETFs and exchange-traded notes (“ETNs”) that are listed on the NYSE or NASDAQ that provide exposure to the VIX Index) (“VIX Index Related Instruments”); and (iii) money market instruments, cash and cash equivalents. The Fund will invest in money market instruments, cash and cash equivalents to provide liquidity, collateralize its futures contracts investments or track the Benchmark during times when the Benchmark moves its entire allocation to cash.
The Fund may gain exposure to VIX Index Related Instruments by investing in a subsidiary organized in the Cayman Islands (the “Subsidiary”). The Subsidiary would be wholly-owned and controlled by the Fund. Should the Fund invest in the Subsidiary, it would be expected to provide the Fund with exposure to investment returns from VIX Index futures contracts within the limits of the federal tax requirements applicable to investment companies, such as the Fund. The Subsidiary would be able to invest in VIX Index futures, as well as other investments that would serve as margin or collateral or otherwise support the Subsidiary’s VIX Index futures positions. The Subsidiary would be subject to the same general investment policies and restrictions as the Fund, except that unlike the Fund, the Subsidiary would be able to invest without limitation in VIX Index futures and may use leveraged investment techniques. Otherwise, references to the investment strategies of the Fund for non-equity investments include the investment strategies of the Subsidiary.
The Benchmark is comprised of three types of components at any given time: an equity component, represented by the 50 highest dividend-yielding equity securities contained in the S&P 500 Index; a volatility component, represented by the VIX Futures Index; and cash. The VIX Futures Index measures the return of VIX Index futures contracts traded on the Chicago Board Options Exchange (“CBOE”). The Benchmark’s allocation to VIX Index futures serves as an implied volatility hedge, as volatility historically tends to correlate negatively to the performance of the U.S. equity markets (i.e., rapid declines in the performance of the U.S. equity markets generally are associated with particularly high volatility in such markets). “Implied volatility” is a measure of the expected volatility of the S&P 500 Index that is reflected in the value of the VIX Index.
During periods of low volatility, a greater portion of the Fund’s assets will be invested in high dividend-yielding equity securities, and during periods of increased volatility, a greater portion of the Fund’s assets will be invested in VIX Index Related Instruments. Although the Fund seeks returns comparable to the returns of the Benchmark, the Fund can have a higher or lower exposure to any component within the Benchmark at any time.
The U.S. Index Committee of Standard & Poor’s (the “Committee”), a division of The McGraw-Hill Companies, Inc. (“S&P”), maintains the Benchmark. That Committee meets monthly. At each meeting, the Committee reviews pending corporate actions that may affect Benchmark constituents, statistics comparing the composition of the Benchmark to the market, companies that are being considered as candidates for addition to the Benchmark, and any significant market events. In addition, the Committee may revise the Benchmark’s policy covering rules for selecting companies, treatment of dividends, share counts or other matters.
The VIX Index is a theoretical calculation and cannot be traded. The VIX Index measures the 30-day forward volatility of the S&P 500 Index as calculated based on the prices of certain put and call options on the S&P 500 Index.
For the complete filfing click: HERE