Powershare Case Study

The case talks about Peter's concerns and future products of Investco Trimark. Its value-oriented investment style is falling out of favor and it is undergoing negative net cash flow in 2008. Now Peter has to decide how to promote the new product Powershares funds, the hybrids of ETFs and traditional mutual funds.

Generally speaking there are 3 kinds of investment instruments arising from the case.

 Mutual funds are collections of money from the mass, invested into securities according to the mutual fund managers' judgment. It is more a "push" product, highly sensitive to the performance of the fund, which calls for great efforts in market initiatives and product innovation. Mutual fund companies reveal their portfolios twice a year.

 Exchange-traded funds are portfolios of securities weighted consistent with indices, which suggests a passive investment strategy. It is securitized so that it is different from common mutual funds in ways of liquidity, transparency, cost-efficiency, distribution, managing fees, and flexibility. ETFs are securities so that they are traded any time when the market is open so that it is much more liquid and disclose the weighting of the portfolio daily. In addition, the management expense ratio is much lower than it of mutual funds.

 The Powershares funds combine the features of the two above. They still focus on indices, but more actively, focusing on specialized industry sectors, market segments or regions of the world. It is organized and distributed in the form of mutual fund, and enjoys most of the benefit of ETF. Besides, it is purchased in Canadian dollars, and hedged by US dollars.

Also, there are heated debates between passive and active investing policies. Passive investing is the policy that replicates the indices, which mirror the entire market performance. Passive investments have lower turnover, incurring lower fees and tax. It is more favorable for long-term horizon investors and in booming economic environment.

The key challenge now for Peter is how to persuade the clients. The company is applying an "independent" strategy of distribution, so that the company has to depend on its investment product performance alone to attract investors. Unfortunately, its former products focused more on the value size rather than a well-performed cash flow, which is an important criterion for investors. What was worse, due to the fact that mutual funds are much more familiar to the investors, it is difficult to show the customers how the new product has advantage over mutual funds, especially in a depressed market.