NAIC designations for PowerShares fixed income ETFs
Six PowerShares fixed income ETFs have received an NAIC designation or Preliminary NAIC Designation** from the Securities Valuation Office of the National Association of Insurance Commissioners (NAIC). Fixed income ETFs with an NAIC designation can be reported as bonds or preferred stock by insurers, which allows for more favorable risk-based capital treatment. A Preliminary NAIC Designation cannot be used to report an ETF to state insurance regulators. However, the purchasing insurance company may obtain an NAIC Designation by filing the ETF with the NAIC's Securities Valuation Office (SVO).
|TICKER||Fund name||Asset Class||NAIC Designation**||Inception date|
|PowerShares Taxable Municipal Bond Portfolio*||Taxable munis||Preliminary 2 as of 04/27/2017||11/17/2009|
|PowerShares Senior Loan Portfolio||Senior loans||Preliminary 4 as of 04/27/2017||3/3/2011|
|PowerShares Emerging Markets Sovereign Debt Portfolio||Emerging market sovereign debt||Preliminary 4 as of 04/27/2017||10/11/2007|
|PowerShares Preferred Portfolio||Preferred stock||Preliminary P3 as of 04/27/2017||1/31/2008|
|PowerShares Fundamental High Yield Corporate Bond Portfolio||High-yield bond||Preliminary 4 as of 04/27/2017||11/15/2007|
|PowerShares International Corporate Bond Portfolio||International corporate bonds||Preliminary 2 as of 04/27/2017||6/3/2010|
* Within the past 12 months, changes to the fund’s name, underlying index and investment objective have occurred, as applicable. For more information about these and other changes, please see the fund’s prospectus.
Fixed income ETF applications for insurance companies
- Exposure to non-traditional fixed income sectors
Certain fixed income sectors (e.g. emerging market debt or senior loans) may offer enhanced income opportunities beyond traditional exposures. Accessing these subsets directly requires expertise in the asset class and can be costly and time consuming. ETFs may provide convenient and efficient access to non-traditional fixed income sectors.
- Liquidity buffers in less liquid asset classes
Fixed income investors face a number of potential challenges such as illiquidity, price uncertainty, and high trading costs. Some fixed income ETFs may provide a more favorable implementation profile than their underlying holdings.
- Cash management
ETFs are often utilized to equitize cash positions and may serve as an effective stopgap for cash management.
- Portfolio construction for small accounts
Building exposure to multiple asset classes in small accounts can be expensive and time consuming. The need to research, select and purchase individual securities may be reduced by using ETFs to access broad segments of the market. For example, instead of an investor picking among individual Build America Bonds, investors can buy shares of the PowerShares Taxable Municipal Bond Portfolio (BAB) and gain diversified exposure to that segment of the bond market. Diversification does not ensure a profit or eliminate the risk of loss.
Important risk information
There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks similar to those of stocks, including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. The Fund is subject to certain other risks. Please see the current prospectus for more information regarding the risk associated with an investment in the Fund.
Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
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