PowerShares Canada, a unit of Invesco Canada Ltd., plans on Tuesday to launch Canada’s first so-called “high-beta” exchange-traded funds (ETF) that can amplify a stock market’s gyrations.
PowerShares S&P/TSX Composite High Beta ETF (THB) and PowerShares S&P 500 High Beta (Canadian Hedged) ETF (UHB), which will be listed on the Toronto Stock Exchange, could give investors higher returns than their respective market indexes in surging stock markets, but also underperform in bear markets.
These ETFs, which track stocks with the highest sensitivity to market movements or “beta,” are geared to more tactical investors who want to bet on a rising market, Michael Cooke, head of distribution for PowerShares Canada, said in an interview.
“The high-beta product is more of a trading vehicle for investors who have a bullish view on Canada or the United States, and want to get a more leveraged exposure to that view without using leverage,” Mr. Cooke said.
“In a rising market, you are going to get exposure to a basket of stocks that will rise more than the market,” he said. “However, they are going to tend to sustain large draw downs in periods of market weakness, so it is probably not advisable for buy-and-hold purposes for investors.”
PowerShares S&P/TSX Composite High Beta ETF, which will charge a fee of 0.30 per cent, will track an index of 50 stocks whose names include Teck Resources, Precision Drilling and Manulife Financial. PowerShares S&P 500 High Beta ETF, which will charge a 0.35-per-cent fee, will track 100 stocks whose names include Bank of America, Citigroup and U.S. Steel.
Invesco Canada’s sister company, U.S.-based Invesco PowerShares Capital Management and the world’s fourth-largest ETF provider, first listed a high-beta ETF in the United States on May, 5, 2011. Its PowerShares S&P 500 High Beta Portfolio ETF gained 17.1 per cent in the first quarter of this year versus a 12.6-per-cent gain for the S&P 500 Index.
However, that same high-beta ETF lost 8.5 per cent since inception to March 31, 2012, compared with a 7.6-per-cent gain for the S&P 500. The ETF performance reflects the struggling market in the latter part of 2011 amid concerns about the euro-zone debt crisis, global growth and the first-ever downgrade of U.S. debt.
PowerShares Canada, which launched the PowerShares S&P 500 Low Volatility ETF in January, also plans to list the PowerShares S&P/TSX Composite Low Volatility ETF (TLV) on Tuesday as well.
This new ETF, which will charge a 0.30-per-cent fee, will track 50 stocks in the Canadian market, with the least volatile ones getting the highest weighting. This offering “mitigates your likelihood of losses in down markets,” Mr. Cooke said.
BMO Low Volatility Canadian Equity ETF , which tracks securities chosen according to a certain set of rules as opposed to following an index, is the only other low-volatility ETF listed in Canada.
PowerShares Canada, which first launched ETFs in Canada in mid-2011, has about $700-million in ETF assets.