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| Rather than picking individual stocks within a sector, investors may use ETFs to gain exposure to a specific sector. With ETFs, investors may move in or out of a sector with ease, possibly allowing for quick reaction to market trends. This strategy is designed to take advantage of the natural ebb and flow of the economy: particular sectors will be up at certain times and down at others. |
| An investor is bullish on small-cap industrials and small-cap utilities. Instead of purchasing a handful of small-cap industrials and small-cap utilities stocks, he chooses to invest in the PowerShares S&P SmallCap Industrials Portfolio and the PowerShares S&P SmallCap Utilities Portfolio for better portfolio diversification to the small-cap industrials and small-cap utilities section of the market. |
- Custom Exposure to Slices of the S&P 600 SmallCap Index
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| PowerShares S&P SmallCap Portfolios are based on indexes that collectively represent the S&P SmallCap 600 Index. Investors may purchase the nine PowerShares S&P SmallCap Portfolios using weightings that align with their individual investment objectives. |
| This tactic gives investors greater flexibility to customize their overall exposure to the small-cap segment of the market. |
| An investor is bullish the broad small-cap market. In addition, she also believes that small-cap health care stocks are especially well-suited for the years ahead, but she is less confident in small-cap information technology stocks. |
| The investor purchases shares of the PowerShares S&P SmallCap Portfolios to serve as satellites. Ideally, she would like these satellites to provide increments of performance value, while also adjusting her overall portfolio exposure. |
- Adding Complimentary Pieces
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| In an effort to increase portfolio diversification, an investor may add the PowerShares S&P SmallCap Portfolios to an existing portfolio that is underweighted in certain sectors and/or small-cap securities. The PowerShares S&P SmallCap Portfolios allow investors to add large portions of the market to their portfolios with relative ease and simplicity. |
| After thorough analysis, an investor realizes that her portfolio is heavily weighted in large-cap securities and has very little exposure to the health care sector. |
| The investor purchases shares of the PowerShares S&P SmallCap Portfolios, with a heavy allocation toward the PowerShares S&P SmallCap Health Care Portfolio. |
- Core and Satellite Allocations
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| A core and satellite investment approach recognizes that overall trends in financial markets account for a large part of total returns over time. The core of the portfolio, often implemented with a core U.S. equity index ETF, is designed to track closely with the market as a whole. The strategy then seeks to add increments of performance value, while also adjusting the overall portfolio exposure, with the addition of "satellite" positions around the core. |
| Following careful research, an investor discovers that the core of her portfolio is heavily weighted in large-cap securities and closely correlated to the market as a whole. |
| The investor purchases shares of the PowerShares S&P SmallCap Portfolios to serve as satellites. Ideally, she would like these satellites to provide increments of performance value, while also adjusting her overall portfolio exposure. |
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| Investors may want to offset long positions without realizing a taxable event2. In that case, PowerShares S&P SmallCap Portfolios may serve as an effective hedge. |
| An investor holds large positions in three small-cap materials stocks with unrealized gains. He shorts the PowerShares S&P SmallCap Materials Care Portfolio, which holds the three companies. In doing so, the investor effectively hedges against downside risk without executing a taxable event. |
- Correlation-Based Tax-Loss Harvesting2
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| Negative returns on investment create an opportunity to lock in significant capital losses for tax purposes. Capital losses can be used to neutralize taxation on capital gains. In addition, capital losses in excess of capital gains may be used as a tax write off to deduct up to $3,000 from an individual's personal income. |
| In some cases it may be beneficial to realize a security's capital loss while still maintaining the investment's intended exposure. Internal Revenue Service "wash-sale" laws disallow capital losses if a security is sold at a loss and a substantially identical security is purchased within 30 days before or after the sale. |
| However, ETFs are not necessarily considered "substantially identical" to individual stocks or bonds. Consequently, an investor may sell a security (realizing capital loss) and purchase an ETF that correlates strongly to the same security (maintaining similar exposure) in the same day. |
| In January an investor purchased a small-cap consumer staples stock. By December the stock is down 15%. |
| The investor determines that the PowerShares S&P SmallCap Consumer Staples Portfolio is highly correlated to his small-cap consumer staples stock by using the . |
| After a careful review of both investments, the investor sells his shares of the small-cap consumer staples stock and buys shares of the PowerShares S&P SmallCap Consumer Staples Portfolio. In the process, he realizes a capital loss while maintaining small-cap consumer staples exposure. |
- Holdings-Based Tax-Loss Harvesting2
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| Negative returns on investment create an opportunity to lock in significant capital losses for tax purposes. Capital losses can be used to neutralize taxation on capital gains. In addition, capital losses in excess of capital gains may be used as a tax write off to deduct up to $3,000 from an individual's personal income. |
| In some cases it may be beneficial to realize a security's capital loss while still maintaining the investment's intended exposure. Internal Revenue Service "wash-sale" laws disallow capital losses if a security is sold at a loss and a substantially identical security is purchased within 30 days before or after the sale. |
| However, ETFs are not necessarily considered "substantially identical" to individual stocks or bonds. Consequently, an investor may sell a security (realizing capital loss) and purchase an ETF that holds the same security (possibly maintaining similar exposure) in the same day. |
| In January an investor purchased a small-cap financials stock. By December the stock is down 15%. |
| The investor determines that the PowerShares S&P SmallCap Financials Portfolio includes his small-cap financials stock as part of its holdings by using the PowerShares Stock Screener. |
| After a careful review of both investments, the investor sells his shares of the small-cap financials stock and buys shares of the PowerShares S&P SmallCap Financials Portfolio. In the process, he realizes a capital loss while maintaining small-cap financials exposure. |
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| When a portfolio is between managers, the PowerShares S&P SmallCap Portfolios may serve as a cost-effective beta1 proxy. |
| An endowment manager retires unexpectedly. While searching for a new manager, the endowment elects to invest in the PowerShares S&P SmallCap Portfolios to maintain cost-effective small-cap beta1 exposure. |
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| From time to time, portfolio managers find themselves with more cash on hand than their investment objective dictates. By turning that cash into equity, portfolio managers may be able to maintain their investment objective and avoid cash drag. |
| The PowerShares S&P SmallCap Portfolios provide the small-cap equity exposure and liquidity fund managers need to effectively keep their portfolios fully invested. This tactic is also viable for individual investors. |
| An energy fund manager's investment objective is to remain fully invested. In order to meet short-term obligations, she also must have cash freely available. |
| The fund manager puts a portion of her short-term cash aside and invests the remainder in the PowerShares S&P SmallCap Energy Portfolio (PSCE). As cash needs fluctuate, she buys and sells shares of PSCE. |
| Diversification does not guarantee a profit or eliminate the risk of loss. |
| Examples are hypothetical and for illustrative purposes only. |
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