Momentum-Weighted Sector Indexing

While most sector ETFs are capitalization-weighted, the PowerShares DWA Momentum Sectors are, as the name suggests, weighted by momentum.  The nine momentum sectors are shown below:

sector1 Momentum Weighted Sector Indexing

To highlight the attributes of one of these momentum sector ETFs, The PowerShares DWA Consumer Cyclicals Momentum ETF (PEZ), consider the following:

  1. PEZ has 40 holdings while many cap-weighted Consumer Cyclical sector ETFs have 2-4 times that many holdings.  The number of holdings in each of our momentum sector ETFs can range from approximately 30-75.
  2. The average technical attributes of the stocks currently in PEZ is 4.70.  (Dorsey Wright’s research database assigns all stocks a technical attribute rating of 0-5, 5 being the strongest and 0 being the weakest)
  3. PEZ has exposure to large, mid, and small cap Consumer Cyclical stocks, while, by definition, capitalization-weighted sector ETFs focus on large caps.  PEZ’s capitalization exposure is shown below: pez cap1 Momentum Weighted Sector Indexing
  4. Those investors interested in a sector rotation model using these momentum sector ETFs can click here.

This example is presented for illustrative purposes only and does not represent a past recommendation.  A relative strength strategy is NOT a guarantee.  There may be times where all investments and strategies are unfavorable and depreciate in value.  Dorsey Wright is the index provider for the suite of PowerShares DWA Momentum ETFs.  See www.powershares.com for more information.

3 Responses to Momentum-Weighted Sector Indexing

  1. steve says:

    Andy, I realize that the powershares sector etfs are new, but I was wondering if
    you have historical navs available for the sector funds. it appears that you do judging by the historical returns of the power 4 model. is it possible to get the
    daily navs going back to inception so that i have a longer history than the powershares etfs?

  2. m bjorkmar says:

    Same here. I’m currently paying a management company to rotate me into and out of the better-performing sectors. They are not so quick to react to changes, in fact only switching twice a month. Isn’t your process what I’ve been looking for? And, isn’t it suitable for a taxable account, as I don’t get taxed until I sell the ETF? Do you have a momentum-driven process akin the the FV ETF?

  3. Andy Hyer says:

    Steve, drop me an e-mail at andy@dorseywright.com and I’ll reply with historical index performance.

    M, the Power 4 Model is not available as a single ETF, rather you would need to trade the individual momentum sector ETFs. You can get the trade signals as a subscriber to Dorsey Wright’s research database or by being added to the PowerShares weekly holdings e-mail. We also post holdings to this blog. Feel free to give me a call at 626-535-0630 to discuss.

    Thanks

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>