PowerShares Lists ETF that Owns Closed-End Funds

By ETFguide.com,

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SAN DIEGO (ETFguide.com) - Invesco PowerShares has just unveiled the PowerShares CEF Income Composite Portfolio (NYSEArca: PCEF). The new ETF will invest in a portfolio of around 70 closed-end funds (CEFs).

'The addition of PCEF broadens our innovative family of ETFs providing income-based investment solutions,' said Ben Fulton, Invesco PowerShares managing director of ETFs. 'We believe PCEF provides investors an attractive means to access a broad basket of yield-orientated closed-end funds through the benefit-rich ETF structure.' 

Unlike traditional mutual funds, CEFs usually offer a fixed number of shares which frequently trade at a premium or discount to the fund's underlying net asset value ( NAV ). While mutual funds are purchased or sold at their closing NAVs, CEFs are bought and sold at their market price during the trading day. Also, CEFs typically employ leverage to juice their yields or returns.
The PowerShares CEF Income Composite Portfolio is based on the S-Network Composite Closed-End Fund Index. The fund will normally invest at least 80% of its total assets in securities of funds included in the underlying index. The rules-based index is designed to track the overall performance of a global universe of U.S.-listed closed-end funds.

The AllianceBernstein Income Fund ( ACG ), Eaton Vance Limited Duration Income Fund ( EVV ) and the PIMCO Corporate Opportunity Fund ( PTY ) are among the top holdings within PCEF.

The index currently includes 71 closed-end funds, of which 27 invest primarily in taxable investment-grade fixed-income securities, 15 invest primarily in high-yield fixed-income securities and 29 primarily use an equity option writing (selling) strategy. PCEF is a 'fund of funds,' as it invests its assets in the common shares of funds included in the underlying index.

The general breakdown of investment strategies with PCEF are: Current income (52.67%), growth and income (21.33%), equity income (11.96%), total return (9.50%) and sector funds (3.66%).

PCEF's annual expenses, which include the fees of the underlying CEFs amounts to 1.81 percent.

Underlying index holdings are selected from a universe of approximately 350 closed-end funds and the index is rebalanced on a quarterly basis. To qualify for the index, a closed-end fund must have a stated investment objective of concentration in one of three sectors: taxable investment-grade fixed income, high-yield fixed income or option income; trade on a recognized U.S. stock exchange; have a minimum capitalization value greater than $100 million; have a total expense ratio of less than 2% per annum; and have an average daily turnover of more than $500,000 per day for the three months prior to the rebalancing date.

The fund, which will issue monthly distributions, is expected to go ex-dividend on March 15, 2010.  

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing ETFs
Referenced Stocks: ACG , EVV , NAV , PTY

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