Multi-Cap Exposure

The other active ETF to debut last April has also continued to show an ability to use its flexibility to an advantage during its short lifetime.

As its name implies, the PowerShares Active Alpha Multi-Cap Portfolio (NYSEArca: PQZ) has a mandate to range where it wants. As such, perhaps the most direct way to measure its performance is to compare how actively managed multi-cap mutual funds are weathering conditions. Along those lines, the average multi-cap core mutual fund lost 13.75% so far this year through March 13, according to Lipper data. In the past three months, the Lipper multi-cap index was down 10.20%.

During the same time frames, PQZ was ahead in shaving its losses by more than 3 percentage points in each case.

A breakdown of sectors tells part of the story. PQZ has slightly less in energy and telecom than VTI. But it has significant overweights in: Tech (40.04% vs. 17.40%) and Materials (15.72% vs. 3.50%). Meanwhile, PQZ is heavily underweighting: Consumer Discretionary (1.90% vs. 9.20%); Consumer Staples (3.43% vs. 11.70%); Health Care (9.67% vs. 15.40%) and Industrials (3.76% vs. 10.20%). PQZ also has no significant exposure to Utilities, while the broader-market as represented by the Vanguard Total Stock Market Index has some 4.60%.

Tech-Heavy Portfolios

On the one hand, the PowerShares Active AlphaQ Fund (NYSEArca: PQY) seems this year to be trailing its most popular passively run rival. That's the PowerShares QQQ (Nasdaq: QQQQ). But while the latter includes stocks from the Nasdaq 100 index, the active ETF selects most of its names from the broader Nasdaq composite benchmark.

And there's a big difference, both in terms of sector weightings and performance. While the QQQ's have no exposure to beaten-down Financial stocks, the Fidelity Nasdaq Composite Index Tracking ETF (Nasdaq: ONEQ) has more than 9.2%. PQY holds even less—about 6.5%.

The active PowerShares fund, which is run by AER Advisors, limits its portfolio to about 50 of the managers' top-ranked names from a universe roughly similar to that of the Nasdaq Composite.

PQY, as a result, tends to make more concentrated subsector bets than the passive ONEQ. Earlier in 2008, the active fund had a modest overweight to Energy. Later, it shifted more toward Health Care. Right now, a big difference seems to be PQY's stake in Tech. As of March 16, that was some 49.82%. By contrast, the ONEQ had about 40% in Tech. That's significant since Tech has been outperforming this year. In particular, PQY has heavily been investing lately in software companies.

Also, PQY had virtually no Energy exposure. That's a change from when it opened in April 2008 when one of its biggest sector weightings was to Energy.

Real Estate Showing Same Pattern

The fourth active ETF, which is focused on real estate investment trusts, came out at the end of last year. In its very brief existence, it's handily beating more broad-based index tracking funds such as the Vanguard REIT Index ETF (NYSE: VNQ).

Most of PSR's investments are in REITs, although it can invest in real estate operating companies as well. That means its managers can select stocks of non-REITs with large real estate holdings that don't have to distribute earnings to shareholders. In other words, they're free to plow profits back into their businesses.

Also, PSR can look much different from its passive peers in other ways. For example, although its portfolio will emphasize attractively priced REITs of stocks in its underlying benchmark, it does have the mobility to look elsewhere. Another interesting wrinkle is that the fund's managers, while expected to remain fully invested at most times, are being given the flexibility to temporarily invest heavily in cash under extreme market conditions.

But with an expense ratio of 0.80%, PSR has a heavy load to bear coming out of the starting gates. How much that will weigh it down going forward against competitors such as VNQ—which has an ER of 0.10%—will be a development to watch.

Scorecard Of Active ETFs (Through 03/13/09)

Source: Companies, Morningstar

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