PowerShares ETFs Exploded in 2005

While it still trails market share leaders Barclays, State Street and Vanguard Group in terms of assets under management, PowerShares Capital Management made a great deal of noise in the exchange-traded funds sector this year; but experts are unsure whether the Wheaton, Ill.-based group can build upon its frenetic product push.

Just 16 months old, PowerShares grew its assets under management in 2005 from a modest $280 million to more than $3 billion and added 32 new ETFs, which represents more products than what is offered by its competition combined.

While the company has built a nice niche for itself, according to a report from Dow Jones, its 36 ETFs sport fees that are much higher than the industry average, no long-term performance data exists on its products, and the lack of a sound marketing strategy to support those product pose questions about their success going forward.

"What they're doing appeals to a certain demographic of investors1/4 [but] whether the company is able to prove that its methodology can produce better results remains to be seen," said Ronald DeLegge, founder of the Chicago-based Web site ETFGuide.com. Cost could be a barrier, he offered. The average expense ratio for PowerShares' emerging market ETF, for instance, is a whopping 0.61%.

Marketing is another challenge, DeLegge said.

"On the retail side, I don't think they're making a big enough push," he said. "They've been going at this frantic pace of bringing new products to market and getting a lot of headlines, but what happens when there are no more [new] products?"

Amy Hawkins, director of closed-end fund research at Raymond James Financial in St. Petersburg, Fla., said the company might need to expand beyond retail, as its competitors have successfully done.

"I think that PowerShares is doing a good job with getting some people aware, but they need to increase their wholesaling force," she said.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.