Systematic Relative Strength

Each quarter, we reconstitute the 14 PowerShares Momentum Indexes for which we are the index provider. With the next rebalance upon us, we wanted to provide some insight into these indexes.

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1. The number of stocks in each index is 100 for PDP, PIE, PIZ, and DWAQ; 200 for DWAS, and 30-75 for each of the sector ETFs
2. Point & Figure relative strength rankings are used to determine which stocks quality for the index each quarter
3. Rather than equal-weight the index, those stocks with the best relative strength, according to our rankings, receive the most weight in the index
4. The first of these ETFs, PDP, was introduced on March 1, 2007; PIE and PIZ were introduced on December 28, 2007; DWAS was introduced on July 7, 2012, and DWA was hired to be the index provider for the other 10 on February 18, 2014
5. None of these ETFs have paid any capital gains distributions since inception (although this is no guarantee that they won’t in the future)
6. For the international ETFs (PIE and PIZ), the investment universe consists of both ordinaries and ADRs. When we do our rankings for international stocks we do the analysis on a USD price (not local price). As a result, any currency fluctuations are taken into account when we convert the local daily prices to dollars.
7. The investment universe for DWAQ is essentially the top 1000 market cap names that trade on the NASDAQ
8. There are no sector constraints in PDP, DWAQ, or DWAS. There are no country or sector constraints in PIE or PIZ.
9. The investment universe for the sector indexes includes small, mid, and large cap stocks
10. Once stocks are selected to be in the index, they will only stay as long as they retain sufficiently strong momentum. We have had stocks stay in the index for anywhere from 1 quarter to more than 15 quarters.

Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss. The 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 these 14 momentum ETFs.

The chart below is the spread between the relative strength leaders and relative strength laggards (universe of mid and large cap stocks). When the chart is rising, relative strength leaders are performing better than relative strength laggards. As of 12/22/14:

This example is presented for illustrative purposes only and does not represent a past recommendation. The performance above is based on pure price returns, not inclusive of dividends or all transaction costs. Investors cannot invest directly in an index. Indexes have no fees. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss.