Download Thu-150-Michael Cooke

Factor Driven ETFs
The search for alternative beta
April 25, 2012
Michael Cooke
Head of Distribution
PowerShares Canada
This presentation was produced by Invesco Canada Ltd
Hypothetical Data Assumptions & Explanations
PowerShares S&P 500 Low Volatility (CAD Hedged) Index ETF and S&P® Low Volatility Index (CAD Hedged)
PowerShares S&P 500 Low Volatility (CAD Hedged) Index ETF seeks to replicate, to the extent reasonably possible and before fees
and expenses, the performance of the S&P 500® Low Volatility Index (CAD Hedged), or any successor thereto.
Index Methodology: The S&P 500 Low Volatility Index (CAD Hedged) is designed to replicate the returns of the S&P 500 Low
Volatility Index (the “Underlying Index”), with all or substantially all of the direct US. dollar exposure of the Underlying Index
hedged back to®the Canadian dollar. The Underlying Index is designed to measure the performance of the 100 least volatile stocks
in the S&P 500 Index. Volatility is defined as the standard deviation of the security’s daily price returns over the prior 252 trading
days. Constituents are weighted relative to the inverse of their corresponding volatility, with the least volatile stocks receiving the
highest weights. The Underlying Index is rebalanced quarterly after the close of trading on the third Friday of February, May,
August and November of each year. The rebalancing reference dates are after the close of trading of the last business day of
January, April, July and October, respectively. Additions are made to the Underlying Index only during the quarterly
rebalancing. Constituents removed from the S&P 500 Index are removed from the Underlying Index simultaneously.
The S&P 500 Low Volatility Index (CAD Hedged) hedges its beginning-of-period balances of its U.S. dollar exposure back to the
Canadian dollar by using rolling one-month forward contracts. Daily hedge returns are computed by interpolating between the spot
price and the forward price.
This index was created April 20, 2011.
PowerShares S&P/TSX Composite Low Volatility Index ETF and S&P/TSX Composite Low Volatility Index
PowerShares S&P/TSX Composite Low Volatility Index ETF seeks to replicate, to the extent reasonably possible and before fees and
expenses, the performance of the S&P/TSX Composite Low Volatility Index, or any successor thereto.
Index Methodology: The S&P/TSX Composite Low Volatility Index is designed to measure the performance of the 50 least volatile
stocks in the S&P/TSX Composite Index. Volatility is defined as the standard deviation of the security’s daily price returns over the
prior 252 trading days. Constituents are weighted relative to the inverse of their corresponding volatility, with the least volatile
stocks receiving the highest weightings. The Index is rebalanced quarterly after the close of trading on the third Friday of March,
June, September and December of each year. The rebalancing reference dates are after the close of trading of the last business day
of February, May, August and November, respectively. Additions are made to the Index only during the quarterly rebalancing.
Constituents removed from the S&P/TSX Composite Index are removed from the S&P/TSX Composite Low Volatility Index
simultaneously.
This index was created April 10, 2012.
2
Hypothetical Data Assumptions & Explanations
PowerShares FTSE RAFI US Fundamental (CAD Hedged) Index ETF and FTSE RAFI US 1000 Index (Canadian Hedged)
PowerShares FTSE RAFI US Fundamental (CAD Hedged) Index ETF seeks to replicate, to the extent reasonably possible and
before fees and expenses, the performance of the FTSE RAFI® US 1000 Index (Canadian Hedged), or any successor thereto.
Index Methodology: The FTSE RAFI US 1000 Index (Canadian Hedged) is designed to replicate the returns of the FTSE RAFI®
US 1000 Index (the “Underlying Index”), with all or substantially all of the direct U.S. dollar exposure of the Underlying Index
hedged back to the Canadian dollar. The Underlying Index is part of the FTSE RAFI Index Series, launched by FTSE in association
with RA. As part of the FTSE’s range of non-market capitalization weighted indices, the FTSE RAFI Index Series weights index
constituents based on the following four fundamental measures of company size: dividends, cash flow, sales and book value. The
Underlying Index is comprised of the 1,000 U.S. companies with the largest fundamental value that are included in the FTSE US
All Cap Index.
Stocks in the Underlying Index are free-float weighted to ensure that only the investable opportunity set is included within the
index. The Underlying Index is transparent, independently governed and provides investors with freely available index rules,
overseen by an independent committee of leading market professionals. The methodology for the Underlying Index includes using
the audited dollar values of cash flow, book value, total sales and gross dividends to derive each constituent index weight. Prices,
which can be prone to speculation, are not a component of the weights. As the fundamental weightings are regularly reviewed
each March, the constituent weights are less affected by market bubbles that can over-expose an investor to individual
companies, sectors or countries. For more information, please go to www.ftse.com/rafi.
The Index hedges its beginning-of-period balances of its U.S. dollar exposure back to the Canadian dollar by using rolling onemonth forward contracts. Daily hedge returns are computed by interpolating between the spot price and the forward price.
This index was created November 28, 2005.
3
Hypothetical Data Assumptions & Explanations
PowerShares FTSE RAFI Canadian Fundamental Index ETF and FTSE RAFI Canada Index
PowerShares FTSE RAFI Canadian Fundamental Index ETF seeks to replicate, to the extent reasonably possible and before fees and
expenses, the performance of the FTSE RAFI® Canada Index, or any successor thereto.
Index Methodology: The FTSE RAFI Canada Index is part of the FTSE RAFI Index Series, launched by FTSE in association with
RA. As part of the FTSE’s range of non-market capitalization weighted indices, the FTSE RAFI Index Series weights index
constituents based on the following four fundamental measures of company size: dividends, cash flow, sales and book value. The
FTSE RAFI Canada Index is comprised of the Canadian stocks included in the FTSE RAFI® Developed ex U.S. 1000 Index, which is
comprised of the 1000 non U.S.-listed companies with the
largest fundamental value selected from the constituents of the FTSE Developed All Cap ex U.S. Index.
Stocks in the FTSE RAFI Canada Index are free-float weighted to ensure that only the investable opportunity set is included within
the Index. The Index is transparent, independently governed and provides investors with freely available Index rules, overseen by
an independent committee of leading market professionals. The methodology for FTSE RAFI Canada Index includes using the
audited dollar values of cash flow, book value, total sales and gross dividends to derive each constituent index weight. Prices, which
can be prone to speculation, are not a component of the weights. As the fundamental weightings are regularly reviewed each
March, the constituent weights are less affected by market bubbles that can over-expose an investor to individual companies,
sectors or countries. For more information, please go to www.ftse.com/rafi.
This index was created November 28, 2005.
Limitations on Use of Hypothetical Data: Performance data for the period before the creation date for the relevant index has
been reconstructed, and indicates what the performance for each index would have been during the period had the index existed,
calculated on a basis consistent with each index’s current basis of calculation. An investor cannot invest directly in an
index. Performance for an index is gross of any fees and expenses that might be applicable to a fund. The hypothetical
performance data for these Indices should not be taken as indicating that if the Index had, in fact, existed during the shown time
periods, that this index would have achieved the hypothetical results shown. Actual results might have differed from the shown
results.
CAD hedged: The PowerShares S & P 500 Low Volatility (CAD Hedged) Index ETF, PowerShares Senior Loan (CAD Hedged) Index
ETF, PowerShares FTSE RAFI US Fundamental (CAD Hedged) Index ETF, and PowerShares Fundamental High Yield Corporate Bond
(CAD Hedged) Index ETF are each based on a CAD hedged version of the Underlying Index. While each ETF will seek to hedge all or
substantially all of the direct US dollar exposure back to the Canadian dollar, a perfect hedge may not be possible and it may not be
able to achieve the same level of hedging as the hedged index it is seeks to replicate. For this reason, the returns of the underlying
index will differ from the returns of an ETF that tracks a CAD hedged version of that index.
4
Standard Performance
S&P/TSX Composite Low Volatility Index
FTSE RAFI Canada Index
S&P/TSX 60 Index
S&P/TSX Composite Index
Currency: CAD
S&P 500 Low Volatility Index
FTSE RAFI U.S. 1000 Index
S&P 500 Index
Currency: USD
Source: Bloomberg, as at March 31, 2012
5
1 year
9.94%
-6.65%
-10.17%
-9.76%
3 years
22.04%
19.21%
13.19%
15.59%
5 years
3.65%
3.45%
1.42%
1.65%
10 years
9.13%
8.77%
7.14%
7.22%
1 year
15.44%
4.96%
8.54%
3 years
21.13%
30.16%
23.42%
5 years
4.68%
2.90%
2.01%
10 years
6.95%
6.11%
4.12%
Factor Driven ETFs
The search for alternative beta
6
1
Trends in the global ETF market
2
Strategies for times of financial
repression
Trends in the global ETF market
Growth and drivers
$2,000
$1,800
$1,600
$1,400
5000
4000
3500
$1,200
3000
$1,000
2500
$800
2000
ETF Total Assets
$600
#ETFs
1500
$400
1000
$200
500
0
Mar-12
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
Source: ETF Landscape, Blackrock, March 31, 2012
2000
1999
1998
1997
1996
1995
1994
1993
$0
7
4500
Assets Under Management: US$1.73 trillion
Products: 4450
10-yr Compound Annual Growth Rate: 31.0%
Trends in the global ETF market
Alternative Beta
be-ta (β): a measure of the volatility, or systematic risk,
of a security or a portfolio in comparison to the market as
a whole
8
Trends in the global ETF market
Cap-weighted
Approach
Debt Issuance
9
Weight in Index
Weight in Index
Traditional vs. fundamental indices
Fundamental Index
Approach
Ability to Service Debt
Trends in the global ETF market
Alternative beta: the third choice
Active and Cap Weighted Approach May Underperform
Alternative Beta
Annualized Returns, April 2002 – March 2012
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
S&P 500 Index
Median Large Cap
Core Mutual Fund
FTSE RAFI US 1000
S&P 500 Low
Volatility Index
Source: Bloomberg, Morningstar. Data as at March 31, 2012. The S&P 500 Low Volatility Index was created on April 20, 2011. The
FTSE RAFI US 1000 Index was created on November 28, 2005. To create the illustration above, performance data for these indices
has been reconstructed, and indicates what the performance for each index would have been during the period had that index existed,
calculated on a basis consistent with its current basis of calculation. An investor cannot invest directly in an index. Please see
Hypothetical Data Assumptions and Explanations at pages 2 - 4 for further details. Figures on this table are presented in USD. Median
Large Cap Core Mutual Fund is based on data from eVestment Alliance. Please see slide 5 for standard performance data for the
referenced indices.
‘Alternative beta’ indices are indices that use non-market-cap weighted passive index methodologies, and therefore offer an
alternative to traditional market-cap weighted indices. Returns for the RAFI US 1000 Index are back-tested. You cannot invest directly
in an index.
10
Trends in the global ETF industry
What matters to ETF investors
1. Liquidity/trading volume
2. Expense ratio of the fund
3. Tracking error of fund
4. Fund company and management
5. Track record of fund
6. Benchmark used
7. Servicing by sponsoring organization
8. Breadth of ETF offerings
11
Trends in the global ETF market
Liquidity matters
Ticker
20 Day Avg.
Bid/Ask
spread
20 Day Avg.
Bid/Ask
spread ratio
Average Daily
Volume
Fund size
(CAD $000)
PowerShares QQQ (CAD Hedged) Index
ETF
QQC
0.022
0.100%
11,763
$12,760
iShares NASDAQ 100 Hedged to CAD Index ETF
XQQ
0.036
0.181%
7,084
$6,645
BMO NASDAQ 100 Equity Hedged to CAD Index
ETF
ZQQ
0.044
0.205%
43,974
$95,927
Fund name
4.5
4
Spread (basis points)
3.5
3
2.5
Weighted avg. spread (underlying)
2
1.5
ETF (median spread)
1
0.5
0
PowerShares QQQ
Source: Bloomberg March 9, 2012
12
Alternative Beta
Tale of the tape: Traditional vs. Fundamental Index ®
A survey of equity index strategies
(December 31, 1990 – February 29, 2012)
1
S&P 500 Index
S&P 500 Low
Volatility Index
vs.
FTSE RAFI US 1000
Index
9.27%
10.46%
Total Return
12.00%
–
1.19%
Excess return over
benchmark
2.73%
15.04%
11.31%
Risk
15.37%
0.39
0.63
Sharpe Ratio1
0.55
4.53%
10.07%
Turnover
12.93%
$111.82
$45.88
Market Cap
(USD bn)
$78.56
0.028
0.018
Avg. Bid-Ask Spread
0.023
Sharpe is a measure of an investments risk adjusted performance. Source: Zephyr, Bloomberg, Data as at February 29, 2012.
The FTSE RAFI US 1000 Index was created on November 28, 2005. The S&P 500 Low Volatility Index was created on April 20,
2011. To create the illustration above, performance data for these indices has been reconstructed, and indicates what the
performance of each index would have been during this period prior to the creation date of each index, calculated on a basis
consistent with each index’s current basis of calculation. An investor cannot invest directly in an index. Performance for an
index is gross of any fees and expenses that might be applicable to a fund. Please see Hypothetical Data Assumptions and
Explanations at pages 2 - 4 for further details. Figures on this table are presented in USD. Please see slide 5 for standard
performance data for the referenced indices.
13
Alternative Beta
Tale of the tape: Traditional vs. Fundamental Index ®
A survey of equity index strategies
(March 31, 1997 – February 29, 2012)
1
S&P/TSX 60
Index
S&P/TSX Composite
Low Volatility Index
vs.
FTSE RAFI Canada
Index
7.82%
11.43%
Total Return
12.24%
–
3.61%
Excess return over
benchmark
4.42%
17.08%
11.08%
Risk
14.61%
0.29
0.77
Sharpe Ratio1
0.64
$34.35
$11.27
Market Cap
(CAD bn)
$31.42
0.0155
0.031
Avg. Bid-Ask Spread
0.029
Sharpe is a measure of an investments risk adjusted performance. Source: Zephyr, Bloomberg, Data as at February 29, 2012.
The FTSE RAFI Canada Index was created on November 28, 2005. The S&P/TSX Composite Low Volatility Index was created on
April 10, 2012. To create the illustration above, performance data for these indices has been reconstructed, and indicates what
the performance of each index would have been during this period prior to the creation date of each index, calculated on a basis
consistent with each index’s current basis of calculation. An investor cannot invest directly in an index. Performance for an
index is gross of any fees and expenses that might be applicable to a fund. Please see Hypothetical Data Assumptions and
Explanations at pages 2 - 4 for further details. Please see slide 5 for standard performance data for the referenced indices.
14
Trends in the global ETF market
Basket liquidity not ETF trading volume
Source: Bloomberg, as at February 17, 2012
15
Trends in the global ETF market
Invesco PowerShares: global experience and expertise
Global rank
ETF/ETP provider
Total assets (US$ Bn)
1.
iShares
$677.2
2.
State Street Global Advisors
$304.9
3.
Vanguard
$205.5
4.
Invesco PowerShares
$74.4
5.
db x-trackers ETC
$49.1
6.
Lyxor Asset Management
$41.9
7.
ETF Securities
$26.9
8.
Van Eck Associates Corp.
$25.0
9.
Proshares
$23.6
Nomura Asset Management
$20.3
10.
Source: InvescoPowershares and Bloomberg, as at March 31, 2012
16
Note: Invesco
PowerShares assets
represents total
sponsored assets.
The PowerShares Revolution
Opportunities for growth
Next chapter of
ETF growth
Traditional
ETF concepts
Source: Invesco PowerShares, Dec. 31, 2010
For illustrative purposes only.
17
Trends in the global ETF market
PowerShares ETFs listed on TSX
Fixed income




PSB
PGL
BKL
PFH
-
PowerShares
PowerShares
PowerShares
PowerShares
1-5 Year Laddered Investment Grade Corporate Bond Index ETF
Ultra DLUX Long Term Government Bond Index ETF
Senior Loan (CAD Hedged) Index ETF
Fundamental High Yield Corporate Bond (CAD Hedged) Index ETF
Equity income


PPS - PowerShares Canadian Preferred Share Index ETF
PDC - PowerShares Canadian Dividend Index ETF
Fundamental Index® equity


PXC - PowerShares FTSE RAFI Canadian Fundamental Index ETF
PXU - PowerShares FTSE RAFI US Fundamental (CAD Hedged) Index ETF
Low-volatility equity


TLV - PowerShares S&P/TSX Composite Low Volatility Index ETF
ULV - PowerShares S&P 500 Low Volatility (CAD Hedged) Index ETF
High-beta equity


THB - PowerShares S&P/TSX Composite High Beta Index ETF
UHB - PowerShares S&P 500 High Beta (CAD Hedged) Index ETF
U.S. equity

18
QQC - PowerShares QQQ (CAD Hedged) Index ETF
Alternative Beta
How does it affect the ETF experience?
19
1
Trends in the global ETF market
2
Strategies for times of financial
repression
Strategies for times of financial repression
A new normal requires a new approach
U.S. federal debt to GDP ratio (%) 1900-2016
140
Debt to GDP Ratio
120
100
80
60
40
20
0
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Source: usgovernmentspending.com.
Data from 1900 – 2011 is actual Debt to GDP Ratio, while 2012 – 2016 is projected Debt to GDP Ratio
Financial Repression is a form of debt reduction employed by governments in order to deal with their high levels of accumulated
debt. This could include governments capping interest rates, ownership of banks, creation of a captive market for government
debt or restrictions on the transfer of assets.
20
Strategies for times of financial repression
A new normal requires a new approach
10-Year Treasury Yields during the
1940s
Year
Nominal Yield
Real Yield
1949
1.80%
3.90%
1948
2.12%
-0.88%
1947
2.18%
-6.62%
1946
1.82%
-16.28%
1945
1.67%
-0.53%
1944
2.10%
-0.20%
1943
2.12%
-0.88%
1942
2.11%
-6.89%
1941
2.07%
-7.83%
1940
1.88%
-1.18%
Source: Guggenheim, “Market Perspectives”, October 2010
21
Strategies for times of financial repression
A new normal requires a new approach
Real Yields
12
(nominal yields minus y/y CPI)
10
8
Percent %
6
4
2
90-day T-bill Yield
0
10 Yr Treasury
-2
-4
-6
-8
1962
1969
1976
1983
1990
Source: Bloomberg, January 1962 - December 2011
22
1997
2004
2011
Strategies for times of financial repression
S&P/TSX Composite Low Volatility Index

The underlying universe is the constituents of the S&P/TSX
Composite Index.
—
—
—

Measure volatility by the standard deviation of each stock, computed
using daily price returns over 252 trading days.
Rank constituents in ascending order of volatility.
The 50 least-volatile stocks form the index.
These 50 stocks are weighted by the inverse of their volatility, with
the least volatile stocks receiving the highest weights.
1
Volatility i
wi  n
1

i 1 Volatility

23
The index is rebalanced quarterly. The reference date of the
rebalance is the last trading day of March, June, September and
December of each year.
Strategies for times of financial repression
S&P/TSX Composite Low Volatility Index

The S&P/TSX Composite Low Volatility Index
—
—

In backtesting, the S&P/TSX Composite Low Volatility Index was less
volatile than the parent S&P/TSX Composite Index.
—
—

designed to serve as a benchmark for managed volatility equity strategies.
provides a non-optimized, model-independent framework to provide exposure to
the least-volatile constituents of the S&P/TSX Composite Index.
33% reduction in volatility between March 21, 1997 to March 31, 2012
30% reduction in volatility over most recent 10 years to March 31, 2012
Lower volatility does not necessarily mean lower returns.
—
—
From March 21, 1997 to March 31, 2012, the S&P/TSX Composite Low Volatility
Index outperformed the S&P/TSX Composite Index.
The low volatility index outperformed in 8 of the 14 years between 1998 and
2011.
Source: S&P Indices. Data as at March 31, 2012. The S&P/TSX Composite Low Volatility Index was created on April 10, 2012. To
create the illustration above, performance data for this index has been reconstructed, and indicates what the performance for
this index would have been during this period had the index existed, calculated on a basis consistent with its current basis of
calculation. An investor cannot invest directly in an index. Performance for an index is gross of any fees and expenses that
might be applicable to a fund. Please see Hypothetical Data Assumptions and Explanations at pages 2 - 4 for further details.
Please see slide 5 for standard performance data for the referenced indices.
24
Strategies for times of financial repression
S&P/TSX Composite Low Volatility Index
600
Annualized
Return1
Standard
Deviation1
S&P/TSX 60 Index
7.82%
17.08%
S&P/TSX Composite Index
7.53%
16.61%
11.43%
11.08%
S&P/TSX Composite Low Volatility Index
500
400
S&P/TSX Composite
Low Volatility Index
300
S&P/TSX 60 Index
200
100
S&P/TSX Composite
Index
0
1
Annualized Returns and Standard Deviation for period March 21, 1997 to March 31, 2012. Standard deviation is a measure of
volatility of the annual rates of return on an investment. Source: S&P Indices, Data as at March 31, 2012. The S&P/TSX
Composite Low Volatility Index was created on April 10, 2012. The S&P/TSX Composite Low Volatility Index has been back
tested to April 1997 To create the illustration above, performance data for this index has been reconstructed, and indicates what
the performance for this index would have been during this period had the index existed, calculated on a basis consistent with its
current basis of calculation. An investor cannot invest directly in an index. Performance for an index is gross of any fees and
expenses that might be applicable to a fund. Please see Hypothetical Data Assumptions and Explanations at pages 2 - 4 for
further details. Please see slide 5 for standard performance data for the referenced indices.
25
Strategies for times of financial repression
S&P/TSX Composite Low Volatility Index
S&P/TSX Composite Low Volatility Index Historical Sector Weights
100%
90%
80%
Utilities
70%
Telecomm Services
60%
Information Technology
Financials
50%
Healthcare
Consumer Staples
40%
Consumer Discretionary
30%
Industrials
20%
Materials
Energy
10%
Mar-12
Sep-11
Mar-11
Sep-10
Mar-10
Sep-09
Mar-09
Sep-08
Mar-08
Sep-07
Mar-07
Sep-06
Mar-06
Sep-05
Mar-05
Sep-04
Mar-04
Sep-03
Mar-03
Sep-02
Mar-02
Sep-01
Mar-01
Sep-00
Mar-00
Sep-99
Mar-99
Sep-98
Mar-98
Sep-97
Mar-97
0%
Source: S&P Indices. Data as at March 31, 2012. The S&P/TSX Composite Low Volatility Index was created on
April 10, 2012. To create the illustration above, data for this index has been reconstructed, and indicates what
the sector weights for this index would have been during this period had the index existed, determined on a basis
consistent with its current basis of determination. An investor cannot invest directly in an index. Please see
Hypothetical Data Assumptions and Explanations at pages 2 - 4 for further details.
26
Strategies for times of financial repression
S&P/TSX Composite Low Volatility Index
Dividend Yield Consistently Higher than S&P/TSX Composite Index
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
S&P/TSX Composite Low Volatility Index
27
S&P/TSX Composite Index
Source: S&P Indices. Data as at March 31, 2012. The S&P/TSX Composite Low Volatility Index was created on April 10,
2012. To create the illustration above, data for this index has been reconstructed, and indicates what the dividend yield
for this index would have been during this period had the index existed, calculated on a basis consistent with its current
basis of calculation. An investor cannot invest directly in an index. The dividend yield of an index is not indicative of the
yield an investor could expect to earn on an ETF that seeks to replicate the performance of that index. Please see
Hypothetical Data Assumptions and Explanations at pages 2 - 4 for further details.
TLV
PowerShares S&P/TSX Composite Low Volatility Index ETF
The PowerShares S&P/TSX Composite Low Volatility Index ETF (TLV) seeks to replicate, before fees and
expenses, the performance of the S&P/TSX Composite Low Volatility Index. The index is designed to
measure the performance of the 50 stocks from the S&P/TSX Composite Index with the lowest realized
volatility over the past 252 trading days as of the most recent quarterly rebalancing. Volatility is defined
for this purpose as the standard deviation of the security’s daily price returns, and reflects the magnitude
of the security’s price fluctuations over this time period.
Why invest in this ETF?
Fund information
Ticker
TLV
Listing Date
April 24, 2012
 Income potential
Distribution
frequency
Monthly
 Capital appreciation potential
Management
fee
0.30%
 Downside protection
Index characteristics
S&P/TSX Composite Low
Volatility Index
Rebalancing
frequency
28
Quarterly
TLV
PowerShares S&P/TSX Composite Low Volatility Index ETF
Competitive Analysis
Name
Ticker
Listing Date
MF
# of
Holdings
Fund Size
(CAD $ 000)
PowerShares S&P /TSX Composite Low Volatility
Index ETF
TLV
04/24/2012
0.30
50
--
iShares S&P/TSX 60 Index Fund
XIU
09/28/1999
0.17
60
$12,005,001
iShares S&P/TSX Composite Index Fund
XIC
02/16/2001
0.22
254
Source: Bloomberg, Morningstar Direct February 27, 2012.
29
$1,316,650
ULV
PowerShares S&P 500 Low Volatility (CAD Hedged) Index ETF
®
The S&P 500 Low Volatility Index (CAD Hedged) is designed to give investors exposure to the 100
®
stocks from the S&P 500 Index with the lowest realized volatility over the past 252 trading days, as of
the most recent quarterly rebalancing. Volatility is defined for this purpose as the standard deviation of
the security’s daily price returns and reflects the magnitude of the security’s price fluctuations over this
time period.
Why invest in this ETF?
 Downside protection
Fund information
Ticker
Listing
date
 Income potential
Distribution
frequency
 Capital appreciation potential
Management
fee
ULV
January 24, 2012
Monthly
0.35%
Index characteristics
S&P 500 Low Volatility Index
(CAD Hedged)
Rebalancing
frequency
30
Quarterly
ULV
PowerShares S&P 500 Low Volatility (CAD Hedged) Index ETF
Competitive Analysis
Name
Ticker
Listing Date
MF
# of
Holdings
Fund Size
(CAD $ 000)
PowerShares S&P 500 Low Volatility (CADHedged) Index ETF
ULV
01/24/2012
0.35
100
$6,054
iShares S&P 500 Index Fund (CAD-Hedged)
XSP
24/05/2001
0.24
501
$1,729,783
Index Dividend Yield comparison1
ETF Ticker
YTM
ULV
3.35%
XSP
1.90%
Source: Bloomberg, Morningstar Direct March 9, 2012.
1
These are the weighted average yields of the S&P 500 Low Volatility Index and the S&P 500 Index as at March 9,
2012. These yields are not indicative of the yield an investor could expect to earn on an ETF that seeks to replicate the
performance of one of these indices. Yields will vary over time.
31
Strategies for times of financial repression
S&P/TSX Composite Low Volatility Index
 Income potential
—
—
Historically, low volatility stocks1 have paid out a higher
dividend than their benchmark (S&P/TSX Composite Index)
S&P/TSX Composite Low Volatility is currently yielding more
than the S&P/TSX Composite Index
 Low volatility core
—
Maintain equity exposure while potentially limiting capital
losses relative to the S&P/TSX Composite Index
1 Low volatility stocks represented by S&P/TSX Composite Low Volatility Index
Source: Bloomberg, as of February 29, 2012; Data based on historical dividend yields of S&P/TSX Composite Low Volatility
Index vs. S&P/TSX Composite Index, 4/30/97 – 02/29/12. There can be no guarantee or assurance that companies will
declare dividends in the future or that if declared, they will remain at current levels or increase over time.
32
PGL
PowerShares Ultra DLUX Long Term Government Bond Index ETF
The DEX Ultra DLUX Long Government Bond Index is a market-capitalization-weighted index consisting
primarily of Canadian federal and provincial government and supranational entity (where a Canadian
government is a member) bonds denominated in Canadian dollars with a remaining effective term to
maturity of greater than 10 years and rated “A” or higher in the composite PC-Bond rating.
Why invest in this ETF?
 Long duration
 High quality
Fund information
Ticker
PGL
Listing date
June 15, 2011
Distribution
frequency
Monthly
 Liquidity of underlying assets
Management
fee
 Low correlation to equities
Index characteristics
DEX Ultra DLUX Long Government
Bond Index
Rebalancing
frequency
33
0.25%
Daily/Quarterly
PGL
PowerShares Ultra DLUX Long Term Government Bond Index ETF
Competitive Analysis
Name
Ticker
Listing Date
MF
# of
Holdings
Fund Size
(CAD $ 000)
PowerShares Ultra DLUX Long Term Government
Bond Index ETF
PGL
06/15/2011
0.25
43
$250,800
iShares DEX Long Term Bond Index Fund
XLB
11/06/2006
0.35
217
$227,302
BMO Long Federal Bond Index ETF
ZFL
05/19/2010
0.20
12
$58,800
Index Yield comparison1
ETF Ticker
YTM
Duration
PGL
3.03%
13.93 yrs
XLB
3.40%
13.45 yrs
ZFL
2.48%
13.75 yrs
Source: Bloomberg, Morningstar Direct March 9, 2012.
1
These are the weighted average yields of the indices as at March 9, 2012. These yields are not indicative of the yield an
investor could expect to earn on an ETF that seeks to replicate the performance of one of these indices. Yields will vary
over time.
34
PFH
PowerShares Fundamental High Yield Corporate Bond (CAD
Hedged) Index ETF
The RAFI® High Yield Bond CAD Hedged Index is comprised of U.S.-dollar-denominated bonds registered
for sale in the U.S. whose issuers are public companies listed on major U.S. stock exchanges. This Index
hedges all or substantially all of its direct U.S.-dollar exposure back to the Canadian dollar.
Why invest in this ETF?
 Fundamentals-weighted bond index
 Potential for enhanced yield
Fund information
Ticker
PFH
Listing date
June 21, 2011
Distribution
frequency
Monthly
 Less interest-rate sensitivity
Management
fee
 Diversification of underlying ETF
Index characteristics
RAFI® High Yield Bond CAD
Hedged Index
Rebalancing
frequency
35
0.65%
Monthly
PFH
PowerShares Fundamental High Yield Corporate Bond (CAD
Hedged) Index ETF
Why invest?
Historically, investors in the lowest credit quality bonds have not been rewarded for
taking on additional risk. The increased coupon is not adequate to compensate
investors for the increased volatility and reduction in price return.
U.S. Corporate Debt Returns by Rating January 1997–December 2011
Bank of America
Merrill Lynch
U.S. Corporate Bond Index
Total Return
Price Return
Coupon Return
Volatility
AAA Index
6.3%
0.6%
5.7%
5.3%
AA Index
6.2%
0.3%
5.9%
4.7%
A Index
6.3%
0.0%
6.4%
5.9%
BBB Index
7.0%
0.1%
6.9%
6.1%
BB Index
7.4%
-0.7%
8.1%
8.1%
B Index
5.8%
-3.1%
8.9%
10.2%
CCC and Below Index
6.7%
-3.2%
9.9%
16.2%
Merrill Lynch abbreviation for AAA index is C0A1; Merrill Lynch abbreviation for AA index is C0A2; Merrill Lynch
abbreviation for A index is C0A3; Merrill Lynch abbreviation for BBB index is C0A4; Merrill Lynch abbreviation for BB
index is H0A1; Merrill Lynch abbreviation for B index is H0A2; Merrill Lynch abbreviation for CCC & below index is H0A3.
Source: Research Affiliates based on data from Bloomberg.
36
PFH
PowerShares Fundamental High Yield Corporate Bond (CAD
Hedged) Index ETF
Competitive Analysis
Name
Ticker
Listing Date
MF
# of
Holdings
Fund Size
(CAD $ 000)
1891 (on a
PowerShares Fundamental High Yield Corporate
Bond (CAD Hedged) Index ETF
PFH
06/15/2011
0.65
look-through
basis)
$45,721
Claymore Advantaged High Yield Bond ETF
CHB
01/11/2010
0.50
201
$370,994
iShares U.S. High Yield Bond CAD-Hedged Index Fund
XHY
01/21/2010
0.60
483
$421,263
BMO High Yield US Corporate Bond Hedged to CAD
Index ETF
ZHY
10/20/2009
0.55
216
$215,900
Index Yield comparison2
ETF Ticker
YTM
Duration
PFH
5.45%
3.75 yrs
CHB
7.51%
4.47 yrs
XHY
7.02%
4.23 yrs
ZHY
6.87%
4.42 yrs
Source: Bloomberg, Morningstar Direct.
1 The ETF directly holds a single underlying ETF.
2 These are the weighted average yields of the indices as at February 16, 2012. These yields are not indicative of the yield an
investor could expect to earn on an ETF that seeks to replicate the performance of one of these indices. Yields will vary over
time.
37
BKL
PowerShares Senior Loan (CAD Hedged) Index ETF
The S&P/LSTA (Loan Syndications and Trading Association) U.S. Leveraged Loan 100 Index (CAD
Hedged) gives investors exposure to the largest 100 loan facilities drawn from a larger benchmark – the
S&P/LSTA Leveraged Loan Index.
Why invest in this ETF?
 Potential for enhanced yield
 Reduced interest-rate sensitivity
 Priority of repayment and protection
 Low correlation to traditional bonds
Fund information
Ticker
Listing
date
BKL
April 16, 2012
Distribution
frequency
Monthly
Management
fee
0.90%
Index characteristics
S&P/LSTA U.S. Leveraged Loan
100 Index (CAD Hedged)
Rebalancing
frequency
38
Semi-annually
The fixed-income risk matrix
High credit
Risk
Fixed-income risk matrix
High-yield
corporate bonds
Senior loans
Long-term
corporate bonds
Low credit
Risk
Long-term
treasury bonds
Short-term
treasury bills
Low interest
rate risk
Source: Standard & Poor’s for illustrative purposes only
39
High interest
rate risk
Important information
Commissions, management fees and expenses may all be associated with investments in exchange-traded funds. Exchangetraded funds are not guaranteed, their values change frequently and past performance may not be repeated. Please read the
prospectus before investing. Copies are available from Invesco Canada at powershares.ca.
There are risks involved with investing in ETFs, including the risk of error in replicating the underlying Index. Please read the
prospectus for a complete description of risks relevant to the ETF. Ordinary brokerage commissions apply to purchases and sales
of the ETF.
Each PowerShares ETF seeks to replicate the performance of the applicable Index, before fees and expenses, and is not actively
managed. This means that the Sub-advisor will not attempt to take defensive positions in declining markets but rather continue
to provide exposure to each of the securities in the Index regardless of whether the financial condition of one or more issuers of
securities in the Index deteriorates.
This piece was produced by Invesco Canada.
Invesco and all associated trademarks are trademarks of Invesco Holding Company Limited, used under licence. PowerShares®
is a registered trademark of Invesco PowerShares Capital Management LLC (Invesco PowerShares).
DEX Investment Grade 1-5 Year Laddered Corporate Bond Index and DEX Ultra DLUX Long Government Bond Index are
trademarks of PC-BOND. These marks have been sublicensed for use for certain purposes to Invesco Trimark Ltd. by PC-Bond, a
business unit of TSX Inc. PowerShares 1-5 Year Laddered Investment Grade Corporate Bond Index ETF and PowerShares Ultra
DLUX Long Term Government Bond Index ETF (the “Products”) are not sponsored, endorsed, sold or promoted by PC-BOND, its
affiliates (including TSX Group Inc.) and third party data suppliers (collectively, “PC-Bond Group”). PC-Bond Group make no
representation, warranty, or condition regarding the advisability of investing in the Products
Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and “TSX” is a
trademark of Toronto Stock Exchange. These trademarks have been licensed for use by Invesco Canada Ltd. The Funds are not
sponsored, endorsed, sold or promoted by S&P or Toronto Stock Exchange, and S&P and Toronto Stock Exchange make no
representation, warranty or condition regarding the advisability of buying, selling or holding units/shares in the Funds.
© Invesco Canada Ltd., 2012
40
Important information
FTSE® is a trade mark jointly owned by the London Stock Exchange Plc and The Financial Times Limited and is used by FTSE
International Limited under licence.
The FTSE RAFI® Index Series is calculated by FTSE International Limited (“FTSE”) in conjunction with Research Affiliates LLC
(“RA”). Neither FTSE nor RA sponsor, endorse or promote this product and are not in any way connected to it and do not accept
any liability in relation to its issue, operation and trading.
Fundamental Index®” and/or “Research Affiliates Fundamental Index®” and/or “RAFI” and/or all other RA trademarks, trade
names, patented and patent-pending concepts are the exclusive property of Research Affiliates, LLC.
PowerShares Canadian Dividend Index ETF and PowerShares Canadian Preferred Share Index ETF are not in any way sponsored,
endorsed, sold or promoted by Mergent, Inc. (Indxis) and Indxis does not make any warranty or representation whatsoever,
expressly or impliedly, either as to the results to be obtained from the use of the Indxis Select Canadian Dividend Index or the
Indxis Select Canadian Preferred Share Index (the “Indexes”) and/or the figure at which the said Indexes stand at any particular
time on any particular day or otherwise. The Indexes are compiled and calculated by Indxis. Indxis shall not be liable (whether in
negligence or otherwise) to any person for any error in the Indexes and Indxis shall not be under any obligation to advise any
person of any error therein. The Indexes are the exclusive property of Indxis, Inc.
Nasdaq®, Nasdaq-lOO®, Nasdaq-lOO Index®, Nasdaq-100 Index Tracking Stock® and QQQ® are registered trademarks of The
Nasdaq Stock Market, Inc. (which with its affiliates is referred to as the “Corporations”) and are used under license to
PowerShares Capital Management LLC., which has sub-licensed certain rights to Invesco Canada Ltd. The Product(s) have not
been passed on by the Corporations as to their legality or suitability. The Product(s) are not issued, endorsed, sold, or promoted
by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE
PRODUCT(S).
© Invesco Canada Ltd., 2012
41
Factor Driven ETFs
The search for alternative beta
Michael Cooke
Head of Distribution
PowerShares Canada
This presentation was produced by Invesco Canada Ltd