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Emerging Markets Debt
PowerShares Emerging Markets Sovereign Debt Portfolio (PCY)
Broad EM Debt Exposure
The PowerShares Emerging Markets Sovereign Debt Portfolio invests in sovereign debt issued and backed by national government entities from emerging markets. The fund provides access to a broad basket of highly liquid sovereign bonds from over 20 emerging market countries. The ETF invests only in sovereign debt that is issued in U.S. dollars.
Sophisticated Weighting Methodology
The DB Emerging Market USD Liquid Balanced Index is PCY's underlying index. The Fund will normally invest at least 90% of its total assets in securities that comprise the Index.
The index is constructed to optimize liquidity while limiting turnover. The eligible countries in PCY’s underlying index are given an equal weight on March 1st of each year. The eligible bonds are then rebalanced quarterly.
Unlike most bond indexes which employ a market value weighting scheme, the equal weighting of the index components helps to avoid overweighting countries with greater debt burdens.
Less Leveraging
The U.S., U.K. and Japan have household, corporate and state debts equal to more than 200% of GDP.a,b
Generally, emerging markets have less leverage, meaning less cashflow will be diverted to debt service.
Powerful Asset Class
Emerging market sovereign government bonds have handily outperformed all major asset classes over the last 10 years.
Since 2000, emerging market sovereign debt returned 10.6% per year, compared to a return of -3.1% for U.S. equities and -0.8% for developed market equities.a
Past Performance is not indicative of future results.
Potential Decoupling Tactic
Emerging market sovereign debt has a 0.55 correlation to U.S. stocks. As a potentially non-correlated asset, PCY may not move in the same direction or magnitude as a portfolio heavily weighted in domestic assets.a
As such, the PowerShares Emerging Markets Sovereign Debt Portfolio may be used as a satellite in a core and satellite portfolio strategy.
The core and satellite investment approach recognizes that overall trends in financials markets account for a large part of total returns over time.
The core of the portfolio is designed to track the markets as a whole. Satellites are added around the core in an effort to increase holdings diversification and potentially boost alpha.
Emerging Market Debt Outperformed All Other Asset Classesa,c (2000-2009)
Past performance is not a guarantee of future results.
Investments in the securities of issuers in emerging market countries involve risks not associated with investments in the securities of issuers in developed countries. Emerging markets are subject to greater market volatility, lower trading volume, political and economic instability, uncertainty regarding the existence of trading markets and more governmental limitations on foreign investment than more developed markets. In addition, securities in emerging markets may be subject to greater price fluctuations than securities in more developed markets.
a Source: Bloomberg, FactSet, Merrill Lynch, as of May 31, 2009
b Source: J.P. Morgan Research, as of May 31, 2009
c
Asset Class Indexes
Emerging Mkt. Debt ML U.S. Dollar Emerging Sov Plus Index
Commodities Reuters/Jefferies CRB Index
Long-Term U.S. Treasuries ML U.S. Treasuries 15+ Years Index
Emerging Mkt. Equities MSCI EAFE Index
U.S. Aggregate Bonds ML U.S. Domestic Master Index
REITs DJ U.S. REIT Index
High Yield Bonds ML U.S. High Yield Master II Index
U.S. Cash ML 3-Month Treasury Bill Index
Developed Mkt. Equities MSCI EAFE Index
U.S. Equities S&P 500 Index
Correlation indicates the degree to which two investments have historically moved in the same direction and magnitude.
Alpha is a risk-adjusted measure of excess returns generated by a portfolio versus a target benchmark. It subtracts the risk-free rate from both manager and benchmark returns.
There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risk similar to those of stocks, including those related to short selling and margin maintenance. Ordinary brokerage commissions may apply.
Investments in the securities of issuers in emerging market countries involve risks not associated with investments in the securities of issuers in developed countries. Emerging markets are subject to greater market volatility, lower trading volume, political and economic instability, uncertainty regarding the existence of trading markets and more governmental limitations on foreign investment than more developed markets. In addition, securities in emerging markets may be subject to greater price fluctuations than securities in more developed markets.
An investment in the securities of non-U.S. issuers involves risks beyond those associated with investments in U.S. securities, including, but not limited to: greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity, political instability, negative impact of change in currency exchange rates or foreign governmental regulation.
Investments in sovereign debt securities involve special risks. The governmental authority that controls the repayment of the debt may be unwilling or unable to repay the principal and/ or interest when due in accordance with the terms of such securities due to: the extent of its foreign reserves; the availability of sufficient foreign exchange on the date a payment is due; the relative size of the debt service burden to the economy as a whole; or the government debtor's policy toward the International Monetary Fund and the political constraints to which a government debtor may be subject. If an issuer of sovereign debt defaults on payments of principal and/or interest, the Fund may have limited legal recourse against the issuer and/ or guarantor. In certain cases, remedies must be pursued in the courts of the defaulting party itself, and the Fund's ability to obtain recourse may be limited. Government obligors in emerging market countries are among the world's largest debtors to commercial banks, other governments, international financial organizations and other financial institutions. Historically, certain issuers of the government debt securities in which the Fund may invest have experienced substantial difficulties in meeting their external debt obligations, resulting in defaults on certain obligations and the restructuring of certain indebtedness. Such restructuring arrangements have included obtaining additional credit to finance outstanding obligation and the reduction and rescheduling of payments of interest and principal through the negotiation of new or amended credit agreements. Please see the prospectus for more complete information regarding the risks of investing in emerging markets and sovereign debt.
Deutsche Bank Securities Inc. is the Index Provider for the PowerShares Emerging Markets Sovereign Debt Portfolio. DB is not affiliated with the Trust, the Advisor or the Distributor. The Advisor has entered into a license agreement with the Index Provider to use the Deutsche Bank Emerging Market U.S. Dollar Liquid Balanced Index. The PowerShares Emerging Markets Sovereign Debt Portfolio is entitled to use the Deutsche Bank Emerging Market U.S. Dollar Liquid Balanced Index pursuant to a sublicensing arrangement with the Advisor.
S-Network Global Indexes, LLCSM and S-NETWORK EMERGING INFRASTRUCTURE BUILDERS INDEXSM are service marks of S-Network Global Indexes LLC and have been licensed for use by Invesco PowerShares Capital Management LLC. The PowerShares Emerging Markets Infrastructure Portfolio is not sponsored, endorsed, sold or promoted by S-Network Global Indexes LLC and S-Network Global Indexes LLC makes no representation regarding the advisability of investing in the PowerShares Emerging Markets Infrastructure Portfolio. Invesco PowerShares Capital Management LLC is not affiliated with S-Network Global Indexes LLC.
Shares are not individually redeemable and owners of the shares may acquire those shares from the Funds and tender those shares for redemption to the Funds in Creation Unit aggregations only, typically consisting of 50,000 shares.
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Invesco Distributors, Inc. is the distributor of the PowerShares Exchange-Traded Fund Trust, the PowerShares Exchange-Traded Fund Trust II, the PowerShares India Exchange-Traded Fund Trust and the PowerShares Actively Managed Exchange-Traded Fund Trust.
Investment products offered are: Not FDIC Insured  • No Bank Guarantee  • May Lose Value
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