On March 1, 2007, the PowerShares DWA Technical Leaders Index debuted as an ETF on the New York Stock Exchange, under the ticker symbol PDP. Tom Dorsey rang the opening bell. Now that AQR Capital Management LLC has listed (see article here) three new momentum index funds, I guess we can claim that PDP was the pioneer.
Having AQR (which stands for “applied quantitative research”) come out with momentum index funds is a big deal. AQR manages $20 billion in hedge funds and is extraordinarily well-regarded in that world. We think their decision to launch momentum indexes is a watershed event that will give similar strategies—like our relative strength strategies—much more exposure. We hope it will finally be recognized for its ability to add value to portfolios as a systematic, high-return methodology that is largely uncorrelated to the overall market and complements both value and growth.
There are a few differences between PDP and the AQR Momentum Index, which is the most similar index. Both draw from a similar universe of 1000 large cap stocks. AQR ranks stocks using a trailing 12-month return, whereas PDP uses a proprietary relative strength measure (which shows better returns in our test window). The DWA Technical Leaders Index plucks out the top 100 stocks and rebalances quarterly. The AQR Momentum Index also rebalances on a quarterly schedule, but includes the top third of the universe, about 330 stocks. Finally, DWA Technical Leaders is weighted by relative strength, whereas AQR uses traditional capitalization weights. As of 6/30/2009, Morningstar reports the YTD return of PDP as -0.71%, whereas the AQR Momentum Index is reported at -8.29%.
AQR may be the new kid on the block, but we are very pleased to see them in the neighborhood.
