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 forwardlooking 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. 2 US10880
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 6
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 Multi-asset strategies and absolute return Continued to expand our comprehensive range of all-weather, highconviction 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 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 7
We ve positioned our business ahead of client demand trends Client demand themes Growing demand for alternatives Increasing demand for solutions and new advice models Invesco s positioning 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 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 8
We enable outcomes that help clients around the world achieve their investment objectives Our comprehensive range of investment capabilities Equity $349B 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 are delivered through diverse investment vehicles Institutional separate accounts Private placements Fixed Income and Money Market $269B AUM 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 Collective trusts Sub-advised portfolios Balanced $47B AUM Traditional Global Balanced Domestic Balanced Non-Traditional Risk Parity Target Maturity Target Risk Custom Solutions Mutual funds (open/closed-end, on/offshore) Separately managed accounts/ Unified managed accounts Alternative Exchange-traded funds (ETFs) Variable insurance funds to enable key outcomes that help our clients around the world achieve their investment objectives $116B AUM 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 Unit investment trusts (UITs) Customized solutions Income Capital preservation Growth * All data as of June 30, 2016. 9
We help clients build better portfolios through high-conviction investing High conviction Fundamental Benchmark centric Benchmark-centric fundamental strategies Fundamental active Strategies constructed through active security selection to generate alpha Factor-based Traditional beta Replication of marketcap-weighted benchmarks Passive Smart beta Transparent, rules-based strategies that provide alternatives to market-capweighted indices by isolating specific factors to provide exposure and/or seek to mitigate risk Factor-based active Strategies that systematically apply active insights to target specific risk/return expectations Active 10
Our entire organization is focused on helping clients achieve their investment objectives Success driver Deep understanding of client needs Pure focus on investment management Experienced, stable and accountable investment leadership Organizational strength Invesco position 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 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 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 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. 11
Invesco s ability to help clients achieve their objectives differentiates us in the market 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 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 Channels Asset classes Geographies Increasing demand for solutions For illustrative purposes only 12
Invesco is an innovative leader in factor investing with $150B in AUM and 40 years experience Factor based investment strategies PowerShares $96.1bn in AUM 4 th largest ETF provider* Factor-based smart beta pioneer since 2003 11 investment professionals 140 ETFs Invesco Quantitative Strategies (IQS) $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 Invesco Unit Trust $19.2bn in AUM 2 nd largest unit trust provider Factor-based smart beta packaged in unit trusts since 1975 19 investment professionals 74 unit trusts 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 *Bloomberg L.P. Data as of June 30, 2016 Source: Data as of June 30, 2016. 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 A more important question: are you willing to settle for average 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-capweighted passive benchmark approach 15
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 Factor investing supports a better diversified portfolio Stronger expression of Investment views More efficient risk-adjusted performance Evolution away from cap-weighted benchmarks 16
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 17
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 18
ETF Market Landscape 19
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 $42B in AUM Over the past 13 years PowerShares has created the most comprehensive range of smart beta and factor ETFs in the industry spanning equities, fixed income and alternatives Over 70% of our smart beta and factor ETFs have greater than a 5 year historical track record PowerShares has successfully partnered with a number of Invesco s active investment teams to create leading ETFs, e.g., senior bank loans and real estate PowerShares is well positioned to become a leading component provider for emerging packaged solutions, e.g. Rhode Island 529 plan, digital advice, etc. PowerShares is one of a handful of ETF players with global capabilities highlighted by local ETF platforms in the U.S., Canada and EMEA PowerShares is investing in strong and scalable infrastructure in preparation for the expected high growth of smart beta and factor ETFs in the future Source: PowerShares Global ETF Products & Research, as of June 30, 2016. Our leadership in smart beta/factor investing keeps us competitive against existing players/new entrants and positions us for future growth and success. 20
4 th largest US ETF provider: Focused on smart beta & access Rank Firm Description No. of Products ETF AUM ($B) Industry Market Share 12 Month Net Flows ($B) Top 3 Products as a % of AUM 1 ishares Diversified 340 873 39% 91 19% 2 Vanguard Low Cost 70 540 24% 76 27% 3 State Street SPY, GLD + Sector SPDRs 164 434 19% 20 54% 4 PowerShares Smart beta + Access 140 96 4% 0 17%* 5 Schwab Low Cost 21 48 2% 14 37% 6 WisdomTree Dividend Weighted 96 38 2% (14) 51% 7 First Trust Smart beta 103 37 2% (3) 24% 8 Guggenheim Access 76 28 1% (2) 43% 9 Van Eck Access 55 28 1% 2 56% 10 ProShares Access 150 26 1% 5 25% *Ex-QQQ, 49% with QQQ included Source: Bloomberg L.P. Data as of June 30, 2016. 21
ETF industry flows are positive across all categories though total flows were flat vs. 2014 Domestic calendar year net flows Net flows ($B) 300 250 200 150 100 2016 flows are currently at $67B (6/30/16) Fixed Income products are leading 2016 flows with $17B 50 0 2010 2011 2012 2013 2014 2015 Total industry flows Source: Bloomberg L.P. Data as of Dec. 31, 2015. Net flow differences may be due to rounding. 22
ETF industry trends 1 2 3 4 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 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) 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 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. 23
ETF industry trends (cont d) 5 6 7 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 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 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 Source: PowerShares Global ETF Products & Research, as of June 30, 2016 24
Smart beta ETFs 25
Growth of index-based investing 1890s 1920s 1970s 1990s 2000s First price weighted index 2 First market cap weighted index 2 First index mutual fund 3 First ETF (1993) 4 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. 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. 26
Common industry definitions 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 Common definitions for smart beta ETFs Based on Predetermined Rules, Systematically Rebalanced Not Market Cap Weighted Can Track a Variety of Factors Also known as: Alternative Beta Alternative Indexing Strategic Beta Advanced Beta 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 capweighted benchmarks and increase portfolio risk. 27
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. 28 Passive cap-weighted Smart beta Active 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** Liquidity 1 Lower costs 2 Transparency 3
Like everything else, how we invest has evolved Alpha Alpha Alpha Smart beta/factor investing Beta Beta Time For illustrative purposes only and should not be deemed as an asset allocation recommendation. 29
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 liquidity 1 Daily transparency 2 Cost 3 Tax efficiency 4 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 aftertax 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. 30
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 31
The smart beta market has grown faster than the overall ETF industry over the past 10 years ETF growth rates 1400% 1200% 1000% 800% 600% 400% 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 200% 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Industry Growth Smart Beta Growth Source: PowerShares Product Strategy & Research, as of June 30, 2016. 32
Demand for smart beta ETFs has continued to increase and is projected to reach $602B in 2020 ETF AUM by investing style 18% 2016 1% 12% 69% 2020 1% 15% 15% 69% Smart beta industry AUM is currently $272B Smart beta ETFs are expected to grow to 15% of the ETF market by 2020 Investing style percentage Pure passive 69% Passive access 18% Smart beta 12% Active 1% Investing style percentage Pure passive 69% Passive access 15% Smart beta 15% Active 1% Source: Bloomberg L.P. Data as of June 30, 2016. Invesco estimates based on 3-Year CAGRs. 33
PowerShares YTD net flows into smart beta are the most diverse (11% HHI) amongst our largest smart beta competitors Rank Provider AUM ($B) Market Share % Net Flows ($M) June YTD 1 Yr YTD Market Share Change Herfindahl- Hirschman Index* (AUM) Herfindahl- Hirschman Index* (Flows) 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. Source: PowerShares Global ETF Products & Research, as of June 30, 2016 View includes FoF for all firms 34
Smart beta pioneers since 2003 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 Achievers TM (PID) 1 Fundamentals Weighted Equity FTSE RAFI US 1000 (PRF) 15 2006 Share Buybacks Buyback Achievers TM ( PKW ) 2 Emerging Sovereign Debt Emerging Markets Sovereign Debt (PCY ) 2 2007 Momentum DWA Momentum (PDP) 15 Options S&P 500 BuyWrite Portfolio (PBP) 1 High Quality Weighted S&P 500 Quality (SPHQ)² 2 2010 Fundamentals Weighted/Fixed-Income Fundamental High Yield TM Corporate Bond (PHB) 3 Yield Weighted REIT KBW Premium Yield Equity REIT Portfolio (KBWY) 1 2011 2014 Volatility-Weighted S&P 500 Low Volatility (SPLV) 10 Beta-Weighted S&P 500 High Beta (SPHB) 3 Multi-Strategy Alternative Multi-Strategy Alternative Portfolio (LALT 1 Laddered Corporate Bond LadderRite 0-5 Year Corporate Bond (LDRI) 1 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. 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 Single focus on leading the smart beta ETF revolution since 2003, with major product innovations Pioneered the first factorbased 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 2,677 Portfolio 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 Source: PowerShares Global Products & Research, as of August 31, 2016. 38
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. 39
Strong product development track record We raised $21 billion from new products launched over the last five years, the 2 nd highest in the industry. Product development trend (2011-2016) Total AUM raised from new product launches ($B) # new products launched ishares PowerShares Schwab Vanguard SSgA First Trust Guggemheim Van Eck ProShares WisdomTree 21.2 17.8 15.9 13.5 12.8 6.0 4.9 4.8 2.9 107.8 41 10 7 73 60 28 35 59 56 174 Source: PowerShares Global Products & Research, as of August 19, 2016. 40
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 Int'l Equity $6 B US Equity $73 B Fixed Income $22 B Commodities & Currencies $6 B A complete tool box to facilitate the delivery of value-added solutions Minimizes product concentration risk 41
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 3 rd 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. 42
Our product line is diverse 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 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 Access ex-qqq $21 B QQQ $40 B Access Market-cap weighted Exposure to: Sectors Industries Themes Top 3 PowerShares ETFs: QQQ Bank Loan Portfolio Preferred Portfolio Source: PowerShares Global Products & Research, as of August 31, 2016. 43
Our product line has continued to gain scale The number of our billion-dollar ETFs has increased from 8 to 19 over the last five years Number of PowerShares ETFs with AUM > $1 Billion 19 8 2011 2016 Source: PowerShares Global Products & Research, as of August 31, 2016. 44
Our smart beta line-up is well established 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 The 2 nd 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 $44B in smart beta AUM 15% 21% 85 smart beta ETFs 62 smart beta ETFs with at least a 5-year track record 35% 20 smart beta ETFs with AUM>$500M 19% PowerShares as % of Industry 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. 45
Transform product innovation into client innovation Leverage our diverse, all-weather line-up to build product loyalty through differentiated, value-added client engagement tools and services. 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 46
Institutional 47
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.) 48
Outlook for institutional use A majority of institutional decision makers plan to increase use of smart beta ETFs Expected change in the next 3 years Somewhat/Significantly Decrease Somewhat/Significantly Increase Neither Increase or Decrease Smart Beta ETFs 3% 38% 59% Market Cap Index 13% 39% 48% Active ETFs 8% 53% 40% Leveraged/Inverse ETFs 12% 70% 18% Evolution of Smart Beta ETFs, Market Strategies International, as of January 2016 49
Institutions plan to increase use of smart beta ETFs Which types of smart beta ETFs will you likely begin using in the next three years? Current Usage Expected Usage (Next 3 years) 64% 62% 63% 55% 51% 60% 44% 40% 35% 39% 43% 40% 39% 25% 20% 20% 1% 1% High Dividend Low Volatility Fundamental Weight Equal Weight High Beta Enhanced Fixed Income Currency-Hedged Momentum Other 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 Evolution of Smart Beta ETFs, Market Strategies International, as of January 2016 50
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 Cash Equitization Portfolio Completion Reduce implementation time to change exposures in asset classes Maintain liquidity while remaining fully invested Aims for portfolio diversification and seeks to minimize benchmark risk while maintaining performance objectives. X X X X X X X X 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 51
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% 100% 90% 80% 70% 60% 50% 57% 42% 40% 30% 20% 43% 58% 10% 0% PowerShares Industry Institutional Assets Retail Source: FactSet 13F data as of June 30, 2016. Source: Cogent Research/PowerShares Institutional Survey, October 2013. 52
US Institutional use of smart beta ETF strategies is expected to increase 53% of institutional clients surveyed in our Cogent Study expected to increase smart beta usage (higher than any other segment) Reasons for using smart beta ETFs (Top 5) Outperforms market indexes 31% Reasons for not using smart beta ETFs (Top 5) Lack of familiarity 34% PowerShares smart beta has the longest track record in smart beta space, with competitive performance record Diversification Reduce volatility/beta 18% 18% Lack of history/ track record No need 12% 11% Alternative weighting of assets 18% Not part of our investment strategy 10% Better asset risk return 13% Prefer active management 9% Source: Cogent Research/PowerShares Institutional Survey, October 2013 53
Capital Markets 54
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 Sales Marketing Capital Markets Product Development Portfolio Management Strong ETF Capital Markets coordination helps ensure liquid markets and a better client experience 55
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 clientspecific 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 56
How are we ensuring a seamless client experience? Cost of owning an ETF: Operating Expense Ratio (OER), Trade Commission, Transaction Costs Bid/Ask spreads Example using PowerShares Emerging Markets Sovereign Debt ETF 57
Bid Ask Spreads make up a key component of the ETF investment wrapper ABC ETF OER 1 Commission Bid/Ask Spread XYZ ETF Total Cost OER 1 Commission Bid/Ask Spread 1 Operating Expense Ratio For illustrative purposes only 58 Total Cost
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. 59
Questions 60 II-PS-PPT-1I 09/16