Fund Times: PowerShares Nearly Doubles ETF Family

Proving its appetite for new exchange-traded funds is limited only by its imagination, PowerShares Capital Management announced in an SEC filing this week its intention to launch 31 new ETFs.

If they're all approved, the new offerings would almost double the size of the PowerShares exchange-traded fund family, which currently has 37 ETFs. Ten of the new ETFs will be based on the "fundamental indexing" methodology of Rob Arnott, chairman of Research Affiliates, according to the filings. One of these RAFI funds (short for Research Affiliate Fundamental Index) will weight mid- and small-cap stocks based on revenues, book value, cash flow, and dividends instead of by market capitalization. The other ETFs will apply the same weighting scheme to stocks in nine sectors: energy, basic materials, industrials, consumer goods, health care, consumer services, telecommunications and technology, utilities, and financials. The PowerShares FTSE RAFI 1000 (PRF) already tracks Arnott's flagship fundamental index, which he has argued is a better gauge of the stock market than market-cap-weighted indexes in general and the S&P 500 specifically.

The 21 other proposed PowerShares funds would cover various market-capitalization levels, some oddball strategies, and more sectors. Sixteen of them will carry the Dynamic brand name and use the same Intellidex indexing methodology used by a series of AMEX indexes already tracked by other PowerShares, such as  PowerShares Dynamic Market (PWC). In addition to the RAFI sector funds, the firm plans to offer another 10 Dynamic sector ETFs that would follow indexes that use quantitative models to select stocks. Many of the additional sector funds land in areas where PowerShares already offers, or aims to offer, funds, such as basic materials, energy, technology, and health care.

The remaining new ETFs include: PowerShares Dynamic MagniQuant, PowerShares Dynamic Large Cap, PowerShares Dynamic Mid Cap, PowerShares Dynamic Small Cap, PowerShares Dynamic Deep Value, PowerShares Dynamic Aggressive Growth, PowerShares Buyback Achievers, PowerShares Cleantech, PowerShares NASDAQ Dividend Achievers, PowerShares India Tiger, and PowerShares Autonomic Allocation Research Affiliates.

Besides being novel and unproven, these ETFs, like the rest of PowerShares' offerings, will be expensive by ETF standards. Their expense ratios will range from 0.60% to 0.70%. Overall, we are very suspicious of gimmicky and expensive offerings like these, and we suggest investors use our new ETF Screener to help them select low-cost funds that will better serve their needs, or they should look at some of the traditional mutual funds that we think are better than their ETF counterparts.

Gabelli Settles with Justice Department for $100 million
Money manager Mario Gabelli has reached a settlement with the U.S. Department of Justice in a civil fraud suit that involved the auction of cellular phone licenses. According to the Wall Street Journal, Gabelli will be required to pay the government at least $100 million, but formal terms of the agreement will be released on June 29. Although the settlement does not directly relate to Gabelli's asset-management firm, Gamco Investors Inc., this legal trouble, as well as other cases settled with other Gabelli firms, does raise questions about how much attention Gabelli can pay to fund management.

Vanguard Announces New Board Member
Amy Gutmann, president of the University of Pennsylvania and scholar in political theory and philosophy, has been elected to the board of directors of The Vanguard Group and has joined the board of trustees of each of the firm's mutual funds, according to a statement recently released. In addition to the presidency at Penn, Gutmann holds faculty appointments in the departments of political science, philosophy, communication, and education. She graduated from Harvard-Radcliffe College in 1971, obtained a master's degree from the London School of Economics in 1972, and received her doctorate in political science from Harvard in 1976. Gutmann formally joins the boards on June 30, 2006, and we hope she'll bring an independent perspective--and, where needed, a critical eye--to her new fiduciary duties at Vanguard.

Clipper Gets New Board Member
Lawrence Harris, professor of finance and business economics at the Marshall School of Business at the University of Southern California, has been added to the board at  Clipper Fund (CFIMX). After receiving his doctorate at the University of Chicago, Harris was visiting scholar at the New York Stock Exchange and has served as an economic fellow in the Office of the Chief Economist of the Securities and Exchange Commission. We've recently been impressed with the Clipper board's decision to choose Davis Selected Advisors to run the fund, instead of merely choosing an advisor affiliated with Old Mutual, and we hope Harris will bring expertise and fiduciary guidance in this spirit.

Two Evergreen Managers Retire, Two Funds Merge
Evergreen Investments announced that two of its managers have retired. Maureen Cullinane, who was one of Evergreen's longest-tenured skippers, ran several domestic growth funds, including  Evergreen Omega (EKOAX). J. Gary Craven also announced his retirement. He had been the manager of  Evergreen Mid Cap Growth  for nearly a decade, and Donald Bisson will replace him as manager of the fund.

In a separate press release, the firm announced that  Evergreen Aggressive Growth  will be merged into Evergreen Omega. These were two of Cullinane's old charges, and Aziz Hamzaogullari will replace her as manager of the combined fund.

529s Sell Well
According to data released by the College Savings Foundation 529 plan trade association, inflows into 529 college savings plans have increased significantly. The first quarter of 2006 saw a record increase of $5 billion, and year-over-year assets in the plans rose 38% to more than $75 billion.

John Hancock Bond Changes Management
Benjamin Matthews has departed from the management team at  John Hancock Bond (JHNBX), and was replaced by Jeffrey Given, according to a filing with the SEC. The fund's other two managers, Howard Greene and Barry Evans, remain in place, and we don't think the management change will impact the process here.