As the exchange-traded fund (ETF) industry continues to grow, Invesco Powershares and Investment Advisor Magazine are teaming up to answer your ETF-related questions.

Submit your questions through the form to the left, and visit often to stay up-to-date with the answers provided by ETF professionals. Also, don't miss all past questions & answers.

There are two new questions this week!

Q: I thought that ETFs were growing in importance, but if that’s the case, why were around 50 of them liquidated last year?

Obviously there are a number of factors that go into evaluating the long-term viability of an ETF, not unlike a mutual fund or separate account, or any type of product in the marketplace. The breakeven point for an ETF will vary from one ETF provider to another. ETF closings are just a normal part of the evolution and life cycle of the industry. Mutual funds undergo similar cyclical patterns each year. As new products are launched, others fail to gather sufficient assets. As a result, products with insufficient asset levels may get closed as part of an overall business decision. It’s important to remember that when an ETF closes, shareholders receive the fund’s net asset value (NAV) as of the liquidation date. At Invesco PowerShares, we are committed to providing a diverse lineup of value-added ETFs to meet the needs of investors.

Q: Have ETFs outperformed other investment vehicles in down markets?

With over 700 ETFs available in the U.S. today, some ETFs outperformed comparable investment vehicles while others underperformed. That being said, recent market volatility has highlighted some ETF structural benefits, particularly transparency, tax-efficiency and flexibility.

Transparency

In volatile markets, investors want to know exactly what they own. ETFs disclose their portfolio holdings daily. During the downturn in financial stocks last year, many investors were concerned about owning one of a host of bank stocks. ETF investors could go online and check their investments’ holdings on a daily basis.

Flexibility

The flexibility of intraday trading has become more important for some investors with markets moving as much as 3% to 5% intraday at times. Investors can buy or sell ETFs during the trading day using a market or limit order. Shares are not individually redeemable and owners of the shares may acquire those shares from the Funds and tender those shares for redemption to the Funds in Creation Unit aggregations only, typically consisting of 50,000 shares.

Tax Efficiency

In 2008, some mutual funds paid out capital gains distributions to shareholders after delivering negative returns. By contrast, Invesco PowerShares distributed zero capital gains in all of our equity and fixed-income ETFs in 2008. When comparing investments, investors should always pay attention to the true after-tax total returns. While it is not Invesco PowerShares intention, there is no guarantee that the Funds will not distribute capital gains to its shareholders. Invesco PowerShares does not offer tax advice. Please consult your own tax advisor for information regarding your own tax situation.

While it is not Invesco PowerShares intention, there is no guarantee that the Funds will not distribute capital gains to its shareholders.

Invesco PowerShares does not offer tax advice. Investors should consult their own tax advisors for information regarding their own tax situations.

Shares are not FDIC insured, may lose value and have no bank guarantee.

General Risk Information
There are risks involved with investing in ETFs including possible loss of money. Shares are not actively managed and are subject to risk similar to stocks, including those related to short selling and margin maintenance. Ordinary brokerage commissions apply.
Note: Not all products are available through all firms.

Trademarks and other Information

Shares are not individually redeemable and owners of the shares may acquire those shares from the Funds and tender those shares for redemption to the Funds in Creation Unit aggregations only, typically consisting of 50,000 shares.

An investor should consider the Funds’ investment objectives, risks, charges and expenses carefully before investing. For this and more complete information about the Funds, call 800.983.0903 or visit www.invescopowershares.com for a prospectus. Please read the prospectus carefully before investing.