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Our leadership in smart beta and Factor investing positions PowerShares for strong future growth September 2016
Forward-looking statements
This presentation, and comments made in the associated Web cast today, may include “forward-looking statements.” Forward-looking statements include information concerning future results of our operations, expenses, earnings, liquidity, cash flow and capital expenditures, industry or market conditions, AUM, acquisitions and divestitures, debt and our ability to obtain additional financing or make payments, regulatory developments, demand for and pricing of our products and other aspects of our business or general economic conditions. In addition, words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “projects,” “forecasts,” and future or conditional verbs such as “will,” “may,” “could,” “should,” and “would” as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements. Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from our expectations. We caution investors not to rely unduly on any forward-looking statements and urge you to carefully consider the risks described in our most recent Form 10-K and subsequent Forms 10-Q, filed with the Securities and Exchange Commission. You may obtain these reports from the SEC’s website at www.sec.gov. We expressly disclaim any obligation to update the information in any public disclosure if any forward-looking statement later turns out to be inaccurate. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This presentation is provided for informational purposes only and is not to be construed as an offer to buy or sell any financial instruments and should not be relied upon as the sole factor in an investment making decision. As with all investments there are associated inherent risks. Please obtain and review all financial material carefully before investing. This does not constitute a recommendation of the suitability of any investment strategy for a particular investor. The opinions expressed are based on current market conditions and are subject to change without notice. Past performance is not a guarantee of future results. All products and services mentioned in this document are made available via affiliated entities of Invesco Ltd.
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Our speakers today
Dan Draper Global Head of Invesco PowerShares
Lorraine Wang Head of Global ETF Products & Research
Eric Pollackov Head of Global ETF Capital Markets
3
Agenda
Introduction
Factor-based investing
ETF market landscape
Smart beta ETFs
Product strategy & research
Institutional
Capital markets
Questions
4
Introduction
5
We manage Invesco with a single focus: to help clients achieve their investment objectives
Every client has a unique set of investment objectives, which can be achieved in a variety of ways
Invesco’s comprehensive range of high-conviction investment capabilities has been constructed over many years to help clients achieve their investment objectives
Our fundamental and factor-based methodologies aim to deliver client outcomes that go beyond the limitations of traditional passive investing and benchmark-centric active management
We believe this high-conviction approach provides better tools to build portfolios in a more precise and impactful way
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We’ve positioned our business ahead of client demand trends
Client demand themes Invesco’s positioning
Search for yield In 2007, began expansion of global fixed income platform, which today supports the full range of single-sector and multi-sector capabilities
Continue to expand the full range of income-related capabilities, including equities, fixed income and alternatives
“Barbelling” and the shift to passive, beta and ETF products
Continued to expand our comprehensive range of all-weather, high-conviction capabilities
Began factor investing in 1983
Added PowerShares in 2006 – smart beta line remains broadest, most diverse in the industry
Continue to accelerate our ETF business globally
Multi-asset strategies and absolute return
Introduced risk parity strategy in 2008
Built new Invesco Perpetual multi-asset team beginning in 2012; expanding to new markets
Invesco Quantitative Strategies (IQS) added global market neutral capability in 2008
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We’ve positioned our business ahead of client demand trends
Client demand themes Invesco’s positioning
Growing demand for alternatives
Entered direct real estate business in 1991; completed the globalization of our real estate capabilities by adding the Asia team in 2010
Expanded into private equity through WL Ross & Co. in 2006
Continued to broaden our range of alternative strategies with the launch of more than 40 liquid alternatives offerings globally beginning in 2011; today the range represents one of the most comprehensive lineups in the industry
Increasing demand for solutions and new advice models
Invesco Solutions builds and manages goal-oriented, multi-asset strategies aligned to client outcomes
Early entrant into the digital advice space through the addition of Jemstep in 2016
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We enable outcomes that help clients around the world achieve their investment objectives
* All data as of June 30, 2016.
Our comprehensive range of investment capabilities …
… to enable key outcomes that help our clients around the world achieve their investment objectives
… are delivered through diverse investment vehicles … Institutional separate accounts
Collective trusts
Mutual funds (open/closed-end, on/offshore)
Exchange-traded funds (ETFs) Unit investment trusts (UITs)
Private placements
Sub-advised portfolios
Separately managed accounts/ Unified managed accounts
Variable insurance funds Customized solutions
Equity $349B AUM
Fixed Income and Money Market $269B AUM
Balanced $47B AUM
Alternative $116B AUM
Global/Multi-Region Global Global ex Domestic Emerging Markets
Regional/ Single Country Asian/Asia ex Japan Australian Greater China Japanese European/UK US Canadian
Sector-Based
Multi-Sector Global Agg/Core Plus Multi-Sector Credit Strategic Income
Single-Sector Investment Grade High Yield Structured Securities Convertibles Municipal Bonds
Specialty EM Debt Stable Value Global Liquidity
Traditional Global Balanced Domestic Balanced
Non-Traditional Risk Parity Target Maturity Target Risk Custom Solutions
Directional Strategies Long/Short Equity Private Equity Bank Loans
Inflation-Protection Commodities Public Real Estate
Securities Private Real Estate
Macro Strategies Global Macro
Relative Value/ Absolute Return Market Neutral Equity Unconstrained Bond
Financial Structures Credit Arbitrage Opportunistic
Income Growth Capital preservation
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We help clients build better portfolios through high-conviction investing
Fundamental Benchmark centric Fundamental active
Benchmark-centric fundamental strategies
Strategies constructed through active security selection to generate alpha
Factor-based Traditional beta Smart beta Factor-based
active Replication of market-cap-weighted benchmarks
Transparent, rules-based strategies that provide alternatives to market-cap-weighted indices by isolating specific factors to provide exposure and/or seek to mitigate risk
Strategies that systematically apply active insights to target specific risk/return expectations
High conviction
Passive Active
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Our entire organization is focused on helping clients achieve their investment objectives
Success driver Invesco position Deep understanding of client needs
Deep knowledge of clients and their evolving needs Comprehensive, all-weather, high-conviction, fundamental and factor investing
product line Demonstrated ability to combine a broad range of capabilities to construct portfolios
aligned with client investment objectives by channel and by region
Pure focus on investment management
No competing lines of business to support Strong investment reputation Independence Infrastructure and client support platforms that enable our investors to spend more
time focused on investing
Experienced, stable and accountable investment leadership
Specialized, stable investment teams with discrete investment perspectives and experience across diverse market cycles
Disciplined, repeatable investment philosophy and processes Strong risk management and oversight Compensation aligned with performance and client interests
Organizational strength
Broad and deep global presence in key markets Solid margins, financial strength, and resources to ensure long-term investment in
the business 6,500+ highly engaged and motivated employees focused on client needs Proven management team with a solid track record
Source: Data as of June 20, 2016.
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Invesco’s ability to help clients achieve their objectives differentiates us in the market
For illustrative purposes only
It is the totality of our organization that makes Invesco highly differentiated in the marketplace and positions us for growth and success over the long term
Channels
Asset classes
Geographies
Independent Depth and breadth of capabilities
Diversification across channels, asset classes and geographies
Search for yield
Barbelling (factor and fundamental investing)
Multi-asset solutions and absolute return
Growing demand for alternatives
Increasing demand for solutions
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Invesco is an innovative leader in factor investing with $150B in AUM and 40 years’ experience
*Bloomberg L.P. Data as of June 30, 2016 Source: Data as of June 30, 2016.
Differentiating attributes Diverse, time-tested investment strategies
All vehicles available to meet investor needs
Product specialists and field wholesaler depth
Education and thought leadership support
$34.5bn in AUM Global presence with teams
across four continents Factor-based active
since 1983 43 investment professionals Globally delivered through
mutual funds, collective trusts and separate accounts
$96.1bn in AUM 4th largest ETF provider* Factor-based smart beta
pioneer since 2003 11 investment professionals 140 ETFs
$19.2bn in AUM 2nd largest unit trust provider Factor-based smart beta
packaged in unit trusts since 1975
19 investment professionals 74 unit trusts
Factor based investment strategies
Invesco Quantitative Strategies (IQS) PowerShares Invesco Unit Trust
13
Factor-based investing
14
Which is better – active or passive?
Invesco believes this is the wrong question to ask
At Invesco, we believe in striving for superior client experience through high-conviction investing – going beyond the limitations of traditional passive investing and benchmark-centric active management
High conviction means our fundamental-based active managers trust their research, have confidence in their discipline and build portfolios that are a reflection of their beliefs – not benchmarks
It also means that our factor-based active and smart beta strategies go beyond the traditional, market-cap-weighted passive benchmark approach
A more important question: “are you willing to settle for average”
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Moving the industry from “Mass Production” to “Mass Customization”
Invesco believes this is occurring largely due to
Investors behavioral biases
Harvesting of Factor Risk Premium
Stronger expression of Investment views
More efficient risk-adjusted performance
Evolution away from cap-weighted benchmarks
Factor investing supports a better diversified portfolio
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Factor investing is to look at the investable world through a particular lens
What is a Factor? A factor is a quantifiable characteristic of an asset
– Can be directly observable characteristics such as size, momentum or value – Can refer to statistical relationships such as the part of price moves that can be
explained by a variable such as inflation, consumption, etc. They explain the return and risk characteristic of portfolios Are often associated with a risk premium that investors receive for either bearing an
undesirable return profile (i.e. low returns in bad times) or for behavioral reasons that prevent arbitrage of such factors
What is Factor Investing? Factor investing is to look at the investable world through a particular lens Tradable securities (e.g. stocks) are used as the instruments to achieve the factor
exposures A factor portfolio may target exposure to a single factor or a combination of factors Similar to other investments, factors possess observable risk and return profiles Diversification & Factor Allocation involves the choice of allocation across factors in a
way that trades off these risk and return profiles to achieve particular investment goals
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Factor strategies should have a robust investment case and be implemented using well designed products
Investment case
Evidence – empirical evidence must support the Factor
Belief – understand the economic and/or behavioral rational
Sustainability – consider the factor is likely be competed away in the future
Well designed products
Systematic – a repeatable process that does not signify discretionary management
Broad – large opportunity set to minimize risk coming from individual securities
Simple – transparent and only as complicated as needed to achieve investment goals
Cost effective – fees and costs should be considered in all stage of the process
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ETF Market Landscape
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We believe our leadership in smart beta/factor investing positions PowerShares for strong future growth
PowerShares is a pioneer of smart beta ETFs with a launch of its multi-factor range of Intellidex ETFs in 2003 – today’s smart beta range of 93 ETFs is over $42B in AUM
Over the past 13 years PowerShares has created the most comprehensive range of smart beta and factor ETFs in the industry – spanning equities, fixed income and alternatives
Over 70% of our smart beta and factor ETFs have greater than a 5 year historical track record
PowerShares has successfully partnered with a number of Invesco’s active investment teams to create leading ETFs, e.g., senior bank loans and real estate
PowerShares is well positioned to become a leading component provider for emerging packaged solutions, e.g. Rhode Island 529 plan, digital advice, etc.
PowerShares is one of a handful of ETF players with global capabilities highlighted by local ETF platforms in the U.S., Canada and EMEA
PowerShares is investing in strong and scalable infrastructure in preparation for the expected high growth of smart beta and factor ETFs in the future
Source: PowerShares Global ETF Products & Research, as of June 30, 2016.
Our leadership in smart beta/factor investing keeps us competitive against existing players/new entrants and positions us for future growth and success.
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4th largest US ETF provider: Focused on smart beta & access
Rank Firm Description No. of
Products
ETF AUM ($B)
Industry Market Share
12 Month Net Flows ($B)
Top 3 Products as a % of AUM
1 iShares Diversified 340 873 39% 91 19%
2 Vanguard Low Cost 70 540 24% 76 27%
3 State Street SPY, GLD + Sector SPDRs 164 434 19% 20 54%
4 PowerShares Smart beta + Access 140 96 4% 0 17%*
5 Schwab Low Cost 21 48 2% 14 37%
6 WisdomTree Dividend Weighted 96 38 2% (14) 51%
7 First Trust Smart beta 103 37 2% (3) 24%
8 Guggenheim Access 76 28 1% (2) 43%
9 Van Eck Access 55 28 1% 2 56%
10 ProShares Access 150 26 1% 5 25%
*Ex-QQQ, 49% with QQQ included Source: Bloomberg L.P. Data as of June 30, 2016.
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0
50
100
150
200
250
300
2010 2011 2012 2013 2014 2015
Net
flo
ws
($B)
Total industry flows
Domestic calendar year net flows
ETF industry flows are positive across all categories though total flows were flat vs. 2014
Source: Bloomberg L.P. Data as of Dec. 31, 2015. Net flow differences may be due to rounding.
2016 flows are currently at $67B (6/30/16)
Fixed Income products are leading 2016 flows with $17B
22
ETF industry trends
1 Global ETF asset growth continues Total global ETF AUM = $3.2 trillion*
US constitutes 73% of globally managed AUM Global landscape for ETFs continues to expand with new opportunities coming from various regions
including other parts of NA and Asia Pacific
2 “Smart beta” strategies are growing faster (on a 3YR & 10YR CAGR) than the overall ETF market and represent 12% of the US ETF market Growing use of smart beta strategies by both institutional and retail investors in the US Non-US investor demand is at an early stage (remains in the “awareness” stage) Rapidly growing adoption of factor investing within smart beta. Factor investing, multi-factor strategies
have led smart beta fund launches (84) 2015 through YTD 2016 (9)
3 Rapidly growing smart beta competition from large existing competitors and new entrants including traditional active asset managers Proliferation of new smart beta launches Crowded market with existing players makes it challenging for new entrants to differentiate their
messaging
4 Investors’ quest for yield, low volatility and quality investment continues Fixed income has led all categories in terms of flows over the last 12 months, attracting over $87 billion
in flows between both taxable and municipal based products Rising apprehension related to traditional bond investing is prompting investors to diversify their fixed
income holdings and turn to alternative multi-asset (including dividends, preferreds, international bond, real estate, equity income, MLPs etc.)
Investors continue to flock to managed volatility products and have been adopting other factors including momentum and quality gaining popularity more recently
Source: PowerShares Global ETF Products & Research, as of June 30, 2016. *Source: ETFGI as of June 30, 2016.
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ETF industry trends (cont’d)
Source: PowerShares Global ETF Products & Research, as of June 30, 2016
5 Department of Labor (DOL) proposed fiduciary rule for retirement accounts US retail advisors and RIA’s are likely to see increased pressure to steer client toward low cost passive
product with the advent of the new DOL ruling ETFs may benefit from the DOL rule
6 Growing use of smart beta & factors by institutions and advisors
Increasing demand from some institutions, including sovereign wealth funds and pensions, to factor investing strategies away from alternatives
Institutional demand for ETFs are growing at a faster rate than retail in the US driven in large part by increasing demand in fixed income and factor ETFs
7 Active ETF’s potential to be a growth driver remains untapped The first non-transparent active ETF launched this year was met with a lot of skepticism to date has very
little volume and minimal assets Different transparency standards and other operational differences between active ETFs and mutual funds
are key inhibitors Active ETFs represent only 1% of industry assets and 3% of 12 month flows More providers filed for non-transparent active ETF exemption
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Smart beta ETFs
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Growth of index-based investing
1 Source: Bloomberg, L.P. as of June 30, 2016 2 Source: S&P Dow Jones Indices, djindexes.com 3 Vanguard, vanguard.com 4 State Street Global Advisors, spdrs.com. 5) Guggenheim , Guggenheiminvestments.com; PowerShares,
PowerShares.com. An investor cannot invest directly in an index.
1890s
First price weighted index2
1920s
First market cap weighted index2
1970s
First index mutual fund3
1990s
First ETF (1993)4
2000s
First smart beta ETF (2003)5
For illustrative purposes only.
From 2010 to 2015
Smart beta ETFs captured over 22% of US ETF equity inflows and now represent 12% of total industry assets.1
We anticipate that this trend will continue in 2016.
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Common industry definitions
1 Source: “The Strategic Factor of Smart Beta” Morningstar Magazine, April/May 2014 Beta is a measure of risk representing how a security is expected to respond to general market movements. Smart beta: an alternative and selection index based methodology that may outperform a benchmark or mitigate portfolio risk, or both in active or passive vehicles. Smart beta funds may underperform cap-weighted benchmarks and increase portfolio risk.
Based on Predetermined Rules,
Systematically Rebalanced
Common definitions for smart beta ETFs
Not Market Cap Weighted Can Track a
Variety of Factors
Also known as: Alternative Beta
Alternative Indexing
Strategic Beta
Advanced Beta
“The common thread among [smart beta ETFs] is that they seek to either improve their return profile or alter their risk profile relative to more traditional market benchmarks.” 1
– Ben Johnson, Director of Passive Funds Research, Morningstar
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PowerShares definition
Beta: is a measure of risk representing how a security is expected to respond to general market movements. Smart beta: an alternative and selection index based methodology that may outperform a benchmark or mitigate portfolio risk, or both in active or passive vehicles. *Smart beta funds may underperform cap-weighted benchmarks and increase portfolio risk. There is no assurance that an investment strategy will outperform or achieve its investment objectives. ** Diversification does not guarantee a profit or eliminate the risk of loss. 1 Liquidity: Shares are not individually redeemable and owners of the shares may acquire those shares from the Fund and tender
those shares for redemption to the Fund in Creation Unit aggregations only, typically consisting of 50,000, 75,000, 100,000 or 200,000 shares.
2 Low Cost: Since ordinary brokerage commissions apply for each buy and sell transaction, frequent activity may increase the cost of ETFs.
3 Transparency: ETFs disclose their holdings daily.
Employing features of both worlds: May outperform a
benchmark* Replicates an index with
rules-based methodology
Provides broad market exposure
Ability to potentially reduce risk through diversification beyond a single security**
Liquidity1
Lower costs2
Transparency3
Passive cap-weighted
Active Smart beta
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Like everything else, how we invest has evolved
For illustrative purposes only and should not be deemed as an asset allocation recommendation.
Alpha Alpha Alpha
Beta Beta
Smart beta/factor investing
Time
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Global financial crisis
The global financial crises created:
Extreme market uncertainty
Record-high volatility
Sharp portfolio drawdowns
Steep capital gain tax consequences
Coming out of 2008, many of our clients have placed a renewed emphasis on:
Tactical asset allocation (vs. buy & hold strategic asset allocation)
Intraday liquidity1
Daily transparency2
Cost3
Tax efficiency4
1 Liquidity: Shares are not individually redeemable and owners of the shares may acquire those shares from the
Fund and tender those shares for redemption to the Fund in Creation Unit aggregations only, typically consisting of 50,000, 75,000, 100,000 or 200,000 shares.
2 Transparency: ETFs disclose their holdings daily. 3 Cost: Since ordinary brokerage commissions apply for each buy and sell transaction, frequent activity may
increase the cost of ETFs. 4 Tax Efficiency is a measure of performance for an investment or a fund that is calculated by dividing the after-
tax return by the pre-tax return. PowerShares does not offer tax advice. Please consult your own tax advisor for information regarding your own tax situation.
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Core PowerShares competencies
To be a global leader requires strength and presence in both the retail and institutional channels
PowerShares maintains unique competitive advantages (US advisor market, smart beta, innovation, brand)
Fast moving and fierce competition requires ETF leaders to be bold and nimble
ETFs present a unique asset management opportunity to globally “passport” a product line
Specialized and strong infrastructure (e.g., portfolio implementation, investment operations & technology, trading, product development, and legal) is a critical competitive edge in scaling an ETF business globally
Organizational alignment, focused investment, governance, and accountability are necessary
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0%
200%
400%
600%
800%
1000%
1200%
1400%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Industry Growth Smart Beta Growth
ETF growth rates
The smart beta market has grown faster than the overall ETF industry over the past 10 years
Source: PowerShares Product Strategy & Research, as of June 30, 2016.
ETF industry has grown from $426B in 2007 to 2.3T in 2016
Smart beta AUM has grown from an AUM of $21B in 2007 to $273B in 2016
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Demand for smart beta ETFs has continued to increase and is projected to reach $602B in 2020
Source: Bloomberg L.P. Data as of June 30, 2016. Invesco estimates based on 3-Year CAGRs.
69%
18%
12% 1%
ETF AUM by investing style
69%
15%
15% 1%
Investing style percentage
Pure passive 69%
Passive access 18%
Smart beta 12%
Active 1%
Investing style percentage
Pure passive 69%
Passive access 15%
Smart beta 15%
Active 1%
2020 Smart beta
industry AUM is currently $272B
Smart beta ETFs are expected to grow to 15% of the ETF market by 2020
2016
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PowerShares YTD net flows into smart beta are the most diverse (11% HHI) amongst our largest smart beta competitors
Source: PowerShares Global ETF Products & Research, as of June 30, 2016 View includes FoF for all firms
Rank Provider AUM ($B)
Market Share
%
Net Flows ($M) YTD Market Share
Change
Herfindahl-Hirschman
Index* (AUM)
Herfindahl-Hirschman
Index* (Flows) June YTD 1 Yr
1 iShares 60 22.6% 3,009 13,962 18,239 5.95% 16% 25% 2 PowerShares 42 15.7% 885 2,712 2,929 0.89% 6% 11% 3 WisdomTree 36 13.6% (2,378) (10,328) (13,229) -6.44% 13% 14% 4 Vanguard 36 13.6% 672 2,924 3,287 1.29% 52% 53% 5 State Street 29 11.1% 16 (1,657) (222) -0.87% 25% 17% 6 First Trust 24 9.1% (284) (3,107) (4,707) -1.93% 5% 23% 7 Guggenheim 15 5.8% 123 (882) (2,145) -0.52% 41% 30% 8 Schwab 8 3.2% 492 1,666 3,022 0.65% 28% 20%
9 Northern Trust FlexShares 4 1.4% 67 797 949 0.27% 21% 46%
10 Goldman Sachs 2 0.6% 154 695 1,556 0.27% 21% 35%
Remainder 8 3.2% 402 1,225 1,132 0.44% N/A 46%
Total 264 100% 3,157 8,007 10,811
*Herfindahl-Hirschman Index is a measure of the firm’s AUM or Flow concentration by product. A lower value indicates the firm’s AUM or flows are diversified across their product line. Calculation: where si is the market share of firm i in the market, and N is the number of firms.
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Smart beta pioneers since 2003
1 Represents the number of funds in the PowerShares ETF Family that utilize the corresponding methodology introduced.
2 On March 18, 2016, at the close of markets, changes to the Fund's name were made. For more information about the changes, please see the Funds’ prospectus.
PowerShares industry leadership in first-to-market ETF innovation:
Year Index Methodology Introduced PowerShares ETF Example (Ticker)
Total Funds in PowerShares
Family¹
2003 Quantitative Constructed Dynamic Large Cap Value (PWV) 15
2005 International Dividend International Dividend AchieversTM (PID) 1
Fundamentals Weighted Equity FTSE RAFI US 1000 (PRF) 15
2006 Share Buybacks Buyback AchieversTM ( PKW ) 2
2007
Emerging Sovereign Debt Emerging Markets Sovereign Debt (PCY ) 2
Momentum DWA Momentum (PDP) 15
Options S&P 500® BuyWrite Portfolio (PBP) 1
2010
High Quality Weighted S&P 500® Quality (SPHQ)² 2
Fundamentals Weighted/Fixed-Income Fundamental High YieldTM Corporate Bond (PHB) 3
Yield Weighted REIT KBW Premium Yield Equity REIT Portfolio (KBWY) 1
2011 Volatility-Weighted S&P 500® Low Volatility (SPLV) 10
Beta-Weighted S&P 500® High Beta (SPHB) 3
2014 Multi-Strategy Alternative Multi-Strategy Alternative Portfolio (LALT 1
Laddered Corporate Bond LadderRite 0-5 Year Corporate Bond (LDRI) 1
35
Product Strategy & Research
36
We believe our product line is well positioned to succeed
Product innovation is in our DNA
The strength of our product line offers competitive advantages
Transform product innovation into “client innovation”
37
Product innovation is in our DNA
Source: PowerShares Global Products & Research, as of August 31, 2016.
Single focus on leading the smart beta ETF revolution since 2003, with major product innovations
Pioneered the first factor-based equity ETF in 2003
The first smart beta commodity ETF in 2006
Invented the first smart beta fixed income ETF in 2007
Nine of our top 10 ETFs are first-to-market/first-of-its-kind Ticker Fund AUM ($M) First to market/First of its kind SPLV Powershares S&P 500 Low Volatility Portfolio 7,645 BKLN PowerShares Senior Loan Portfolio 5,188 PGX PowerShares Preferred Portfolio 4,717 PRF PowerShares FTSE RAFI US 1000 Portfolio 4,314 PCY Powershares Emerging Markets Sovereign Debt
Portfolio 3,835
SPHD PowerShares S&P 500 High Dividend Low Volatility Portfolio
2,677
DBC PowerShares DB Commodity Index Tracking Fund 2,404 PGF PowerShares Financial Preferred Portfolio 1,842 PRFZ PowerShares FTSE RAFI US 1500 Small-Mid Portfolio 1,480 PDP PowerShares DWA Momentum Portfolio 1,433
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While the barriers to entry for ETFs are low, the barriers to gain scale are high due to first mover advantages
There is a significant first mover advantage in ETFs - the first mover gets an automatic, and potentially insurmountable boost in assets
The rationale for first mover advantage is due to liquidity, size and familiarity with the ticker
Industry statistics had shown that in 71% of all product segments, the first mover had the most assets
Subsequent entrants tend to compete with a first mover fund on price though not always successfully
We spend a lot of time and effort developing first-of-its-kind ETFs. Among the 20 largest PowerShares ETFs, 17 were first-to-market ETFs, 13 of them are still the leaders in the space they cover
Source: PowerShares Global Products & Research, as of August 31, 2016.
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Strong product development track record
Source: PowerShares Global Products & Research, as of August 19, 2016.
We raised $21 billion from new products launched over the last five years, the 2nd highest in the industry.
Total AUM raised from new product launches ($B)
# new products launched
2.9 4.8 4.9 6.0
12.8 13.5 15.9 17.8 21.2
107.8
WisdomTreeProShares
Van EckGuggemheim
First TrustSSgA
VanguardSchwab
PowerSharesiShares
56 59
35 28
60 73
7 10
41 174
Product development trend (2011-2016)
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Our product line offers competitive advantages
A diverse, all-weather line-up of 141 ETFs covering major asset classes and strategies to help meet investors’ changing needs.
PowerShares product line by asset class
A complete tool box to facilitate the delivery of value-added solutions Minimizes product concentration risk
US Equity $73 B
Int'l Equity $6 B
Fixed Income $22 B
Commodities & Currencies
$6 B
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We are well positioned to participate in fixed income growth
We have $22B in fixed income ETFs and rank #4 in industry’s fixed income AUM YTD, net flow into fixed income ETFs makes up 64% of our total and is the industry’s
3rd highest Our 19 fixed income ETFs cut across markets, credit and duration spectrum. Seven of
our fixed income ETFs have AUM>$1B due to early mover advantage Latest innovation: PowerShares Variable Rate Investment Grade Portfolio
Fixed Income AUM ($B) YTD Net Flows ($B)
iShares 232.5 35.9 Vanguard 103.8 16.9 State Street 42.7 3.7 PowerShares 21.6 4.8 PIMCO 12.1 0.8 Guggenheim 8.4 1.5 Van Eck 8.2 2.2 Schwab 6.4 1.7 Northern Trust 2.6 0.1 First Trust 2.2 1.0 WisdomTree 0.8 (0.1)
Source: Bloomberg L.P. Data, as of August 31, 2016.
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Our product line is diverse
Source: PowerShares Global Products & Research, as of August 31, 2016.
Our product line consists of tools to help investors: Extract alpha and/or manage risk - smart beta ETFs Gain precise market exposures - Access ETFs
PowerShares product line by strategy
Access
Market-cap weighted
Exposure to: Sectors Industries Themes
Top 3 PowerShares ETFs: QQQ Bank Loan Portfolio Preferred Portfolio
Smart beta
Non-market cap weighted
Single factor building blocks
Multi-factor Fundamental or equal
weighted
Top 3 PowerShares ETFs: S&P 500 Low Volatility FTSE RAFI US 1000 S&P 500 High Dividend
Low Volatility
Smart beta $44 B
QQQ $40 B
Access ex-QQQ $21 B
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Our product line has continued to gain scale
Source: PowerShares Global Products & Research, as of August 31, 2016.
The number of our billion-dollar ETFs has increased from 8 to 19 over the last five years
8
19
2011 2016
Number of PowerShares ETFs with AUM > $1 Billion
44
Our smart beta line-up is well established
Source: PowerShares as of August 31, 2016. The smart beta category includes ETFs that have an alternative and selection index based methodology that seeks to outperform a benchmark or reduce portfolio risk, or both. Industry remainder represents all ETF products that meet this criteria, excluding PowerShares smart beta products. Smart beta funds may underperform cap-weighted benchmarks and increase portfolio risk. Beta is a measure of risk representing how a security is expected to respond to general market movements.
15% 21%
$44B in smart beta
AUM
85 smart beta
ETFs
62 smart beta ETFs with at
least a 5-year track record
PowerShares as % of Industry
19%
20 smart beta ETFs with
AUM>$500M
35%
The 2nd Largest smart beta Provider
The Broadest smart beta Line-Up
The Most Number of SB ETFs with at least a 5-yr
Track Record
The Most Number of SB ETFs with AUM>$500M
Scale: The 2nd largest provider with $44 Billion in smart beta AUM Breadth: The broadest smart beta line-up with 85 ETFs. Top competitors’ smart beta
AUM are concentrated in dividend ETFs. Track record: The most number of smart beta ETFs with track record > 5 years Depth: The most number of smart beta ETFs with AUM > $500M
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Transform product innovation into “client innovation”
Portfolio construction
Custom ETF solutions to meet specific objectives/outcome
Factor DNA analysis
Digital offering
Online platform will be a key channel driving demand for ETFs
ETFs and digital advice may benefit from the new DOL rule
Exploit synergies between PowerShares and Jemstep to offer superior online experience
Thought leadership & research
Smart beta
Factor investing
Leverage our diverse, all-weather line-up to build product loyalty through differentiated, value-added client engagement tools and services.
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Institutional
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US Institutional demand for ETFs is growing faster than retail
Certain institutional channels are increasingly adding ETFs to improve risk budgeting and liquidity profiles of their portfolios and trading strategies
PowerShares and Invesco have strong global capital markets relationships with the sell-side which we can further leverage to reach institutional clients
PowerShares is currently under-represented in its coverage of institutional clients versus major competitors and the overall industry average
PowerShares strength in smart beta ETFs is a unique differentiator to institutions who are increasingly becoming accepting of the benefits of smart beta solutions (e.g., low volatility, high momentum, etc.)
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Outlook for institutional use
Evolution of Smart Beta ETFs, Market Strategies International, as of January 2016
A majority of institutional decision makers plan to increase use of smart beta ETFs
Expected change in the next 3 years
3%
13%
8%
12%
38%
39%
53%
70%
59%
48%
40%
18%
Smart Beta ETFs
Market Cap Index
Active ETFs
Leveraged/Inverse ETFs
Somewhat/Significantly Decrease Neither Increase or DecreaseSomewhat/Significantly Increase
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Institutions plan to increase use of smart beta ETFs
Evolution of Smart Beta ETFs, Market Strategies International, as of January 2016
“Forty-five percent of all institutional decision-makers expect to allocate more assets to smart beta funds moving forward -- proof of the growing acceptance and understanding of the category. Even among those who haven’t yet used a smart beta ETF, 3 in 10 expect to do so.” * Evolution of Smart Beta ETFs, Market Strategies International, as of January 2016
62%
55% 51%
40%
25% 20%
40%
20%
1%
64% 63% 60%
44%
35% 39%
43% 39%
1%
High Dividend Low Volatility Fundamental Weight Equal Weight High Beta Enhanced FixedIncome
Currency-Hedged Momentum Other
Current Usage Expected Usage (Next 3 years)
Which types of smart beta ETFs will you likely begin using in the next three years?
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In the institutional channels, ETFs are often used when there is a high priority for liquidity, transparency or convenience
Strategy Objective Pensions, Endow. &
found
Consultants Insurers OCIO, asset mgrs & MFs
Hedge Funds
Transition Management Maintain exposure while searching for new managers
X X X
Rebalancing Reduce implementation time to change exposures in asset classes
X X X X
Cash Equitization Maintain liquidity while remaining fully invested
X X X X
Portfolio Completion Aims for portfolio diversification and seeks to minimize benchmark risk while maintaining performance objectives.
X X X X X
Securities Lending Potential for additional return X X X
Tactical Adjustments to Asset Allocation
Over - or underweight certain styles, regions or countries on the basis of short term view
X X X X
Long / Short ETF Applications
Obtain long or short exposure X
Taxable Plans Benefit from the tax efficiency of ETFs X X
Fixed Income Duration and Credit Adjustments
Fine-tune the target duration and credit quality of fixed income portfolios
X X X X X
Small Institutional Plans
Implement the desired asset allocation regardless of plan size
X X X
Source: Invesco
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PowerShares is skewed to retail ownership given its historical focus on Advisors and smart beta strategies
We maintain a strong retail distribution focus
Institutions have not yet fully embraced smart beta. Only 24% of firms surveyed in our Cogent Study used smart beta with an average allocation of 7%
43% 58%
57% 42%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
PowerShares Industry
Institutional Assets Retail
Source: FactSet 13F data as of June 30, 2016.
Source: Cogent Research/PowerShares Institutional Survey, October 2013.
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US Institutional use of smart beta ETF strategies is expected to increase
Source: Cogent Research/PowerShares Institutional Survey, October 2013
31%
18%
18%
18%
13%
Reasons for using smart beta ETFs
(Top 5)
34%
12%
11%
10%
9%
Outperforms market indexes
Diversification
Reduce volatility/beta
Alternative weighting of assets
Better asset risk return
Lack of familiarity
Lack of history/
track record
No need
Not part of our
investment strategy
Prefer active management
Reasons for not using smart beta ETFs
(Top 5)
53% of institutional clients surveyed in our Cogent Study expected to increase smart beta usage (higher than any other segment)
PowerShares smart beta has the longest track record in smart beta space, with competitive performance record
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Capital Markets
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ETF Capital Markets are a critical component of the ETF ecosystem
It is imperative to be well coordinated and aligned with both internal and external functions in order to leverage the opportunity within ETF capital markets
Capital Markets
Marketing
Portfolio Management
Product Development
Sales
Strong ETF Capital Markets coordination helps ensure liquid markets and a better client experience
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Department mandate
Our core functions
Liquidity & Execution Services: The liquidity and execution services team is in place to help financial advisors and institutional clients navigate the ETF trading process. The team helps clients assess the potential liquidity of PowerShares ETFs, developing a client-specific trading strategy and evaluating the potential impact of a trade
Market Maker & Authorized Participant Relationship Management: As ETFs trade in the secondary market and cannot be purchased directly through the ETF issuer, efficient trading is dependent on the ETF market maker community. The PowerShares Global Capital Markets team works with various market making firms, A.Ps and other sell side firms to ensure these parties may effectively make markets in PowerShares products. In addition, the team continuously monitors secondary market activity, assessing and tracking market maker performance, evaluating spreads and monitoring trading activity
Research & Content: The PowerShares Global Capital Markets team provides actionable market commentary to our clients. This involves assimilating and distilling high quality buy side and sell side research into ETF investment strategies and providing market perspectives
Sales Support: Maintain a strong pulse on sales challenges and opportunities as well as support various sales teams across all channels by providing subject matter expertise
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How are we ensuring a seamless client experience?
Example using PowerShares Emerging Markets Sovereign Debt ETF
Cost of owning an ETF: Operating Expense Ratio (OER), Trade Commission, Transaction Costs – Bid/Ask spreads
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Bid Ask Spreads make up a key component of the ETF investment wrapper
1 Operating Expense Ratio For illustrative purposes only
OER1 Commission Bid/Ask Spread
OER1 Commission Bid/Ask Spread
ABC ETF
XYZ ETF
Total Cost
Total Cost
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We believe our leadership in smart beta/factor investing positions PowerShares for strong future growth
PowerShares is a pioneer of smart beta ETFs with a launch of its multi-factor range of Intellidex ETFs in 2003 – today’s smart beta range of 93 ETFs is over $42B in AUM
Over the past 13 years PowerShares has created the most comprehensive range of smart beta and Factor ETFs in the industry – spanning equities, fixed income and alternatives
Over 70% of our smart beta and factor ETFs have greater than a 5 year historical track record
PowerShares has successfully partnered with a number of Invesco’s active investment teams to create leading ETFs, e.g., senior bank loans and real estate
PowerShares is well positioned to become a leading component provider for emerging packaged solutions, e.g. Rhode Island 529 plan, digital advice, etc.
PowerShares is one of a handful of ETF players with global capabilities highlighted by local ETF platforms in the U.S., Canada and EMEA
PowerShares is investing in strong and scalable infrastructure in preparation for the expected high growth of smart beta and Factor ETFs in the future
Source: Invesco as of June 30, 2016
Our leadership in smart beta/factor investing keeps us competitive against existing players/new entrants and positions us for future growth and success.
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Questions
60 II-PS-PPT-1I 09/16
