Just a week after one former Nuveen executive threw in the towel, a second set of former Nuveen executives are making a go at the exchange-traded fund (ETF) space. This twist this time is that up to 10 percent of the portfolio backing the ETF may be invested outside of the index on which to which it is targeted. Essentially, the new PowerShares ETFs will be enhanced index funds and not the long-awaited actively managed flavor.

Harold Bruce Bond, president of Powershares Capital Management, is betting that this strategy will give them an edge where Gary Gastineau and ETF Advisors failed. Bond is also betting that the firm can leverage its limited marketing resources by concentrating its efforts on financial advisors rather than retail investors. Yet, Bond's new firm, which is the separated twin of Gastineau's effort, may be in for a tough challenge.

PowerShares Capital is headquartered in Wheaton, Illinois and was formed at the end of last year from the remains of Nuveen's doomed equity ETF project. Meanwhile Gastineau created ETF Advisors from the remnants of Nuveen's fixed income ETF efforts. The initial filings for the funds were submitted by Leviathan Securities where a second former Nuveen executive -- Ranga Nathan -- is the president.

The new shares on the two initial funds -- Dynamic Market Portfolio and the Dynamic OTC Portfolio -- will start trading on the American Stock Exchange this Thursday. Both funds are pegged to the Amex's new Intellidex index. Both ETFs will hold 100 stocks and carry expense rations of 60 basis points after a five basis point fee waiver.

On the surface at least, the Dynamic OTC Portfolio looks similar to the popular Nasdaq "Cubes" ETF that is also based on the largest 100 firms in the index as measured by market cap. That index proved popular during the Nasdaq run-up when many advisors and institutions used it as a hedge and a way to play the tech boom.

Powershares' decision to base the shares on relatively unknown benchmarks may slow the adoption of the funds with advisors, even those who are familiar with Cubes. Indeed, even the trading volume in Cubes has slipped 45 percent from April of 2000 to just $1.9 billion per day from $3.5 billion.

The potential market for the new Powershares' ETFs would presumable be a small proportion of that held by Cubes and other higher profile ETFs. Time will tell if it is enough.  

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