It was over a year ago now that we took our Technical Leaders Indexing methodology—used to build the suite of PowerShares DWA Momentum ETFs—down to the sector level. On February 19, 2014 Dorsey Wright became the index provider for the 9 sector ETFs shown in the table below. Bringing this methodology to the sector level opens up a whole range of implementation possibilities, including employing sector rotation strategies that trade not just cap-weighted sectors, but can now also include momentum-weighted sectors.
Some quick facts about these Momentum Sector ETFs:
- PnF relative strength is used to select the holdings for these ETFs (click here for a white paper on PnF RS best practices)
- These ETFs can hold Small, Mid, and Large Cap U.S. stocks
- The number of holdings can range from 30-75. When Small and Mid caps have favorable relative strength, the number of holdings will tend to expand
- The indexes are rebalanced on a quarterly basis
- The members of the index are weighted by momentum so that the stocks with the best relative strength receive the most weight
A quick look at YTD performance of these sector momentum ETFs is shown below:
Source: Yahoo! Finance. 1/1/15-5/20/15. The performance above is based on total returns, inclusive of dividends, but does not include all transaction costs. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss.
As shown above, 6 of the 9 momentum sector ETFs are outperforming their cap-weighted peers so far in 2015. The margin of outperformance in Technology, Energy, Healthcare, and Consumer Staples is particularly large so far this year.
The number of holdings in each of the indexes and current market value for each is shown in the table below:
More information about each of these ETFs can be found at PowerShares.com.
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