PowerShares' New Ad Campaign Foolishly Targets Other ETF Providers

Have you seen the new James Bond meets Spy vs. Spy TV ad from PowerShares? The tagline tells you all you need to know: Escape The Average.

What I want to know is, why is PowerShares marketing itself against Vanguard and BGI when it could be tackling Fidelity, American Funds and Janus? The ETF industry holds $500 billion in assets; the mutual fund industry holds $10 trillion, most of it in actively managed funds. And those actively managed funds pulled in 74% of all new assets in the first five months of 2007.

With those numbers, why try to convince index investors that a quantitative strategy is better than indexing, when the comparison with actively managed funds is much more favorable? Instead of Escape The Average, how about Like Your Mutual Fund, But Better?

That campaign would make sense. You could tell investors to “ask their advisors about PowerShares,” and those advisors could wax rhapsodic about the increased tax efficiency (no cap gains!) and lower costs of ETFs. After all, those advantages are magnified in the active space: PowerShares has so far paid out zero capital gains on its funds, and even its high expense ratios (0.65% for new funds) look downright cheap compared with the average actively managed fund (1% or more).

Instead, PowerShares tries to convert index investors (historically a hard sell) and win share in the ETF industry (a hard task). Go figure.