Bloomberg has high praise the the PowerShares DWA Emerging Markets Technical Leaders ETF (PIE):
It’s been a challenging year for emerging markets. The hugely popular Vanguard FTSE Emerging Markets ETF (VWO) is down about 1 percent so far in 2013; the iShares MSCI Emerging Markets Index (EEM) has fallen 2.1 percent. Bucking the trend is the PowerShares DWA Emerging Markets Technical Leaders Portfolio (PIE). That ETF is up 14.6 percent during the same period. How is that possible?
It all comes down to the design of the index that PIE tracks — the Dorsey Wright Emerging Markets Technical Leaders Index, developed by technical analysis pioneer Tom Dorsey’s firm.
Here’s how it works: Every quarter the index looks through more than 2,000 emerging market stocks and picks the 100 that have performed the best relative to the group over the past six to 12 months. That’s a wildly different approach from that taken by VWO and EEM. Those are traditional market-cap-weighted ETFs, in which the largest stocks in a group dominate the index.
Let’s look at the year-to-date performance of the four countries PIE weighs most heavily:*
- Indonesia: 16.2% of assets; up 18.2%
- Thailand: 14.3% of assets; up 10%
- Mexico: 11.1% of assets; down 2.8%
- Turkey: 11% of assets; up 19.4%
Therein lies the reason for PIE’s outperformance. It has heavy weightings in the smaller, more successful emerging market countries and lighter weightings in struggling BRIC countries. Chinese stocks make up 7 percent of the fund and Brazilian companies 4 percent. In VWO, Chinese stocks are 14.5 percent of the fund and Brazilian stocks are another 14.5 percent. For EEM, it’s 13.6 percent and 12.7 percent. Unlike many of its peers, PIE isn’t beholden to any country or region or sector — it simply follows the heat.
See www.powershares.com for more information about PIE. A list of all holdings for the trailing 12 months is available upon request.
