Benzinga's Exclusive Interview With Bobby Brooks From Invesco PowerShares (QQQQ, DBA, PFRZ, PWT, PWY, PZI)

Bobby Brooks, senior vice president and director of sales at Invesco PowerShares Capital Management, was nice enough to grant Benzinga.com an exclusive interview. PowerShares is a leader in the Exchange Traded Funds space and manages such popular offering as the PowerShares QQQ Trust ETF (NASDAQ: QQQQ) and the PowerShares DB Agriculture Fund (NYSE: DBA). Invesco PowerShares, in partnership with S&P, has recently rolled out new Sector ETFs which are comprised of small-cap stocks. We talked with Bobby about the advantages of these new funds, how they are constructed, and some of PowerShares other small-cap offerings.

This interview is also available as episode 5 of Benzinga's Podcast.

Q: Why do you think small-cap ETFs seem to be among the offerings that ETF issuers are really focusing on bringing to market recently?

A: The ETF industry is growing very fast. We are up to over 800 Exchange Traded Funds here in the U.S, with over $800 billion in assets. One of the reasons for the growth in the small cap space is that many issuers are looking for areas that have not been explored. This week we launched 9 small-cap sector ETFs. We think that it is a great time to launch these products in order to give financial professionals an efficient tool to gain small cap exposure.

Q: What was the process for deciding what sectors the new PowerShares ETFs would focus on?

A: We worked with S&P, who is the index provider, and they built the small cap sectors very similarly to the way they split up the large cap sectors for the SPDR ETFs. The large caps are based on the S&P 500, whereas the new small cap PowerShares sector ETFs are based on the S&P small-cap 600 index. They have nine sectors, ranging from consumer discretionary to utilities. They basically just split the S&P 600 into the 9 separate sectors. The only unique situation here, is that in the large cap space they actually include telecom with technology, whereas in the small cap space they put telecom, which has six securities, with utilities. They feel that in the small cap space this is a better fit. That is one of the only differences in terms of construction. What they also look for is not only to have small cap exposure and representation, but also to make sure it is an investable index. So, they look at market capitalization - each security has to be between $250 million and $1.2 billion. Also, the component companies must have positive earnings for 4 consecutive quarters, and sufficient liquidity, with a minimum annual trading volume of 100% of market cap. In addition, at least 50% of the shares of each issue must be publicly available.

Q: PowerShares is the first issuer to market sector-specific small-cap ETFs in the U.S., do you think your new funds will prompt a wave of ''me too'' ETFs from rival issuers?

A: That is an interesting question. We believe that we will have success, we wouldn't have launched these ETFs if we didn't. Within this industry it is becoming more and more competitive. In my personal opinion, yes, if we have success, there will be more products that come out that are trying to capture the demand. It is really important in this industry, as we have seen through many different issues, to be the first to market. We have seen that being the first to market in various asset classes as well as being first to market in different areas that haven't been explored yet is very advantageous. Ticker symbols are also important. We think that institutional traders and financial advisors will find the symbols for our new small-cap ETFs to be simple and straightforward. For example, our PowerShares S&P Small-Cap Energy ETF is symbol XLES. This is easy to remember, because the large cap energy ETF symbol is XLE. Many industry players that we have met with seem to appreciate the simplicity of this.

Q: In your opinion, why is now a good time for investors to consider small-caps?

A: Many times in post-recession environments small-caps have outperformed. Having tools to get exposure to small caps is very important for the professional investor. We believe that these ETFs are going to be another great resource for investors and financial professionals, especially in this environment. We are giving market participants tools to gain specific sector exposure while mitigating risk. We believe that these are going to be dynamic investment tools.

 Q: Talk about PowerShares other small-cap offerings. Anything planned for the Emerging markets?

A: With regard to the rest of our product line, we have a number of interesting broad based products in the small-cap space. One in particular is the fundamental index, the FTSE RAFI US 1500 Small-Mid (NASDAQ:PFRZ). It is a small and mid-cap broad based U.S. product which we think gives great exposure to the wider performance of the small-cap space. We also have the PowerShares Dynamic Small-Cap Growth ETF (NYSE:PWT) and our PowerShares Dynamic Small-Cap Value ETF (NYSE:PWY). Rounding out our product line is a micro cap fund, the PowerShares Zacks Micro Cap ETF (NYSE:PZI), which is comprised of four hundred different micro-cap securities.

Exchange Traded Funds have revolutionized investing on both the retail and institutional levels. The new ETF products from PowerShares are a terrific way to gain small-cap, sector specific exposure while mitigating risk and keeping fees low.