PowerShares has filed paperwork with the SEC for a “PowerShares KBW Property & Casualty Insurance Portfolio” (NYSE:KBWP). The Fund seeks investment results that correspond (before fees and expenses) generally to the price and yield of the equity index called the KBW Property & Casualty Index.
Principal Investment Strategies
The Fund will normally invest at least 80% of its total assets in securities of property and casualty insurance companies. The Fund will normally invest at least 90% of its total assets in securities that comprise the Underlying Index. The Underlying Index is a modified market capitalization weighted index that seeks to reflect the performance of approximately 24 property and casualty insurance companies. The Underlying Index is compiled, maintained and calculated by KBW. As of , 2010, the Underlying Index included [·] companies with a market capitalization range of between $[·] and $[·].
Concentration Policy. The Fund will invest 25% or more of the value of its total assets in securities of issuers in an industry or group of industries to the extent that the Underlying Index concentrates in an industry or group of industries.
KBW Property & Casualty Index
Calculation Methodology. The KBW Property & Casualty Index is a modified capitalization weighted index of 24 of the largest (as defined by their float adjusted market capitalization) property and casualty insurance sector related companies publicly listed within the United States and traded in U.S. dollars.
The four or five largest companies in the Underlying Index will be assigned maximum initial weights equal to the lesser of their actual capitalization weight or 8% in the reconstituted Underlying Index. All other companies with a capitalization weight of more than 5% will be assigned initial weights of 4% in the reconstituted Underlying Index. All companies with capitalization weights under 4% will share equally in the weight available for redistribution, but none of these companies will be assigned an initial weight of more than 4%.
Rebalancing. Based on capitalizations as of the close on the third Friday of the last month in each calendar quarter, the Underlying Index is rebalanced according to the following rules:
· If any of the top four or five companies’ Index weightings have increased beyond 10%, their weighting will be reduced to a maximum of 8% in the quarterly rebalancing;
· If any of the remaining companies’ weightings have increased beyond 5%, their weightings will be reduced to a maximum of 4% in the rebalancing;
· If any of the top four or five companies’ weightings have dropped below 6%, their weightings will be increased to the lesser of their float adjusted capitalization weight or 8% in the rebalancing; and
· Any excess weighting available will be equally distributed to the smaller companies and any weighting needed to increase weighting in the larger companies will be taken from the smaller companies in the same manner as in the initial allocation at the time of the rebalancing.
Under the methodology employed, on a quarterly basis, the index committee will evaluate the components’ current percentage weights (after taking into account such scheduled weight adjustments due to stock repurchases, secondary offerings or other corporate actions, mergers and index composition changes). Such quarterly examination will result in an index rebalancing if either one or both of the following two weight distribution requirements are not met:
(1) The current weight of the single largest float adjusted market capitalization index security must be less than 10%; and
(2) The “collective weight” of those index securities whose individual current weights are in excess of 5.0%, when added together, must be less than or equal to 40.0%.
If either one or both of these weight distribution requirements are not met upon quarterly review or if a special rebalancing is required, a weight rebalancing will be performed. First, relating to weight distribution requirement (1) above, if the current weight of the single largest index security exceeds 10%, then the weights of all stocks above 10% will be set to 8%. Second, relating to weight distribution requirement (2) above, for those index securities whose individual current weights or adjusted weights in accordance with the preceding step are in excess of 5.0%, if their “collective weight” exceeds 40.0%, then the weights of all stocks will be scaled down by just enough for the “collective weight,” so adjusted, to be set to 40.0%. The aggregate weight reduction among the securities resulting from either or both of the above re-scalings is redistributed to the remaining securities in the Underlying Index. Additional iterations will be performed until the accumulated increase in weight among the remaining securities exactly equals the aggregate weight reduction among the securities from rebalancing in accordance with weight distribution requirement (1) and/or weight distribution requirement (2).
Then, to complete the rebalancing procedure, once the final percent weights of each index security are set, the index share weights will be determined anew based upon the last sale prices and aggregate modified market capitalization of the index at the close of trading on the Thursday in the week immediately preceding the week of the third Friday in March, June, September, and December. Changes to the index share weights will be made effective after the close of trading on the third Friday in March, June, September, and December. Ordinarily, new rebalanced weights will be determined by applying the above procedures to the current index share weights.