Invesco PowerShares adds high-grade corporate bond fund tracking RAFI

By Susanna Moon

Chicago, Sept. 12 - Invesco PowerShares Capital Management LLC said the PowerShares Fundamental Investment Grade Corporate Bond Portfolio is expected to begin trading Thursday on the NYSE Arca.

The portfolio is based on the RAFI Investment Grade Corporate Bond index, and the fund will invest at least 80% of its total assets in the securities that comprise the index.

The index comprises dollar-denominated bonds registered for sale in the United States whose issuers are public companies listed on a major U.S. stock exchange. Only securities rated BBB/Baa or higher by both Moody's Investors Service and Standard & Poor's and with more than one year to maturity qualify for inclusion in the index.

Based on Research Affiliates' Fundamental Index methodology, the underlying index is reconstituted at the end of each month, and the target RAFI weights are revised and rebalanced annually.

The fund is the first investment-grade corporate bond exchange-traded fund to use Research Affiliates' Fundamental Index methodology and provides investors access to maturities ranging from one to 10 years, according to a press release. The fund is expected to issue monthly distributions.

Traditional bond indexes generally use market-cap weighting, which results in greater weights assigned to issuers that have issued more debt, the release said. It also means that bonds that are overvalued or undervalued relative to their peers will be over weighted or under weighted in the index.

In contrast, the Research Affiliates' Fundamental Index approach assigns weights based on factors that are indicative of an issuer's ability to service debt.

The methodology uses four fundamental measures of company size: book value, sales, dividends and cash flow. Constituent weights are reset annually. This approach reduces the potential for return drag inherent in cap-weighted indexes, the release said.

Invesco is a Chicago-based provider of ETFs.

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