PowerShares Sector ETFs - dummies

By Russell Wild

PowerShares has about 50 domestic and a dozen international sector funds. The ETFs offered in this line are actively managed, with a broker picking the stocks. PowerShares industry sector offerings include the following:

U.S. Sector Fund Name Ticker
PowerShares Dynamic Biotechnology & Genome PBE
PowerShares Dynamic Building & Construction PKB
PowerShares Dynamic Energy & Exploration PXE
PowerShares Dynamic Food & Beverage PBJ
PowerShares Dynamic Hardware & Consumer Electronics PHW
PowerShares Dynamic Insurance PIC
PowerShares Dynamic Leisure & Entertainment PEJ
PowerShares Dynamic Media PBS
PowerShares Dynamic Networking PXQ
PowerShares Dynamic Oil & Gas Services PXJ
PowerShares Dynamic Pharmaceuticals PJP
PowerShares Dynamic Retail PMR
PowerShares Dynamic Semiconductors PSI
PowerShares Dynamic Software PSJ
PowerShares Dynamic Telecommunications & Wireless PTE
PowerShares Dynamic Utilities PUI
PowerShares Lux Nanotech PXN
PowerShares Aerospace & Defense PPA
PowerShares WilderHill Clean Energy PBW
PowerShares Water Resources PHO
Global Sector Fund Name Ticker
PowerShares Global Coal Portfolio PKOL
PowerShares Global Nuclear Energy PKN
Powershares Global Steel Portfolio PSTL
PowerShares Global Wind Energy Portfolio PWND

On the down side, PowerShares charges 0.60 percent for its domestic offerings and 0.75 percent for its global funds: That’s a whole lot more than most of the competition is charging or would dare charge.

The funds are also “dynamic,” which means that the indexes they track are actively managed (someone somewhere is picking stocks). Many investors would see that as a plus. However, it means added expense (both up front and behind the scenes) and a possible loss of tax efficiency. On the upside, however, PowerShares’ selection of industry groupings, in both their U.S. and global offerings, has been innovative, to say the least.

Although it’s not a good idea to build an entire portfolio of PowerShares sector ETFs, if you’re looking to sprinkle some noncorrelating holdings into an otherwise well-diversified portfolio, PowerShares may have something to offer.

Especially intriguing are the WilderHill Clean Energy ETF (PBW) and the Water Resources ETF (PHO). Investing in companies that provide alternative fuels and the filtration and delivery of drinking water respectively, these two ETFs, so far, seem to have sweetly low correlations to the broad market.