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.
The information found on Dorsey, Wright & Associates’ Web Pages has been prepared without regard to any particular investor’s investment objectives, financial situation, and needs. Accordingly, investors should not act on any recommendation (express or implied) or information in this report without obtaining specific advice from their financial advisors and should not rely on information herein as the primary basis for their investment decisions. Information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other sources, believed to be reliable. However, such information has not been verified by Dorsey, Wright and Associates, LLC (DWA) or the information provider and DWA and the information providers make no representations or warranties or take any responsibility as to the accuracy or completeness of any recommendation or information contained herein. Neither the information nor any opinion expressed shall constitute an offer to sell or a solicitation or an offer to buy any securities or commodities mentioned herein. This report or chart does not purport to be a complete description of the securities or commodities, market or developments to which reference is made. There may be instances when fundamental, technical, and quantitative opinions may not be in concert. Each investor should carefully consider the investment objectives, risks and expenses of any Exchange-Traded Fund (“ETF”) prior to investing. Before investing in an ETF investors should obtain and carefully read the relevant prospectus and documents the issuer has filed with the SEC. To obtain more complete information about the product the documents are publicly available for free via EDGAR on the SEC website (http://www.sec.gov). Dorsey Wright is the index provider for suite of PowerShares DWA Momentum ETFs.
