Smart ETFs," a cross between actively and passively managed portfolios. Instead of merely tracking a popular stock index, these new funds replicate PowerShares' proprietary "Intellidexes," which are designed to beat the benchmarks of traditional index ETFs and are updated once a quarter.

The PowerShares strategy seems to be working. Since its May 1, 2003 debut the company's Dynamic Market Portfolio (PWC) has gained 63%, vs. 34% for the S&P 500 index. Its Dynamic OTC Portfolio (PWO), launched the same day, has since climbed 68%, vs. 48% for the Nasdaq Composite.

The eight different industry ETFs focus on different industries. Each holds 30 stocks. They're intelligent vs. other benchmark indexes. Other indexes — say biotechnology — will look at biotechnology companies and say, let's just get anyone in biotech of any size...The indexes that PowerShares is based on seek to use intelligence to identify certain stocks, instead of incorporating everyone into the index. We identify stocks with the greatest investment merit.

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