Letting Winners Run: Using ADRs to Deliver Your Active International Exposure

May 12, 2016

Check out John Lewis’ article in Iris.com today on our Systematic RS International portfolio (click here).

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Advisors Warm to Allocation ETFs

April 1, 2016

Nice article by Jackie Noblett of Ignites, highlighting the successful trend toward wrapping strategies in an ETF—a trend which Dorsey Wright is leading.

While funds of funds have their niche in the mutual fund marketplace, ETFs allocating to other exchange-traded products have struggled to catch on with advisors who pride themselves in their ability to build low-cost and efficient ETF portfolios.

But ETF sponsors say advisors are starting to pay more attention to ETFs of ETFs with embedded asset allocation strategies for parts of their practices where the efficiencies of buying a single stock outweigh additional management fees.

“Advisors could go out and do a similar thing [to the ETF] but then they are incurring turnover costs, commissions and may not be able to track the strategy as well, so the management fee overlay [of an ETF of ETFs] is very reasonable,” says Jeff Beeson, product development manager at Invesco PowerShares.

PowerShares is among the firms looking to tap into demand for products with prepackaged allocations. Both it and First Trust launched ETFs this month that invest in a portfolio of their own products based on research methodologies developed by Dorsey, Wright & Associates.

State Street Global Advisors, meanwhile, has filed registration statements to add the SPDR SSGA Flexible Allocation ETF and SPDR SSGA U.S. Sector Rotation ETF to its line of actively managed asset allocation ETFs of ETFs launched in 2012.

Most of these products remain relatively small compared with funds of mutual funds and separately managed accounts composed primarily or exclusively of ETFs.

iShares launched a range of asset allocation ETFs in 2008, and rebranded them under its core series.

The four funds totaled just under $1.8 billion at the end of February, according to Morningstar. State Street launched the actively managed SPDR SSGA Global Allocation ETF, SPDR SSGA Income Allocation ETF and SPDR SSGA Multi-Asset Real Return ETF in 2012, but combined those products hold about $237 million in assets.

A handful of such products have had greater success in gathering assets, however. The $3.4 billion Dorsey Wright Focus 5 Fund is among the largest asset allocation ETFs of ETFs, and critical to its success is the “intellectual capital and following” that comes with partnership with the Richmond, Va.-based research and model shop, says Ryan Issakainen, senior VP at First Trust.

First Trust has worked with Dorsey on building other models that allocate among the Wheaton, Ill.-based sponsor’s ETFs, but offering the strategy in a stand-alone ETF provides another way for advisors to access the research and models.

“Dorsey Wright has demonstrated expertise in helping advisors use ETFs in portfolio construction, either in sector rotation or some other kind of model, and there were already a number of financial advisors that had significant buy-in to the strategies,” Issakainen says.

Similarly, PowerShares sees significant value in the Dorsey name. In the case of the DWA Multi-Asset Income Portfolio, it is the first time the research shop has put together a product using a multi-asset income-focused model, Beeson notes. The firm is positioning the product as a way for advisors to enhance income generation without having to “reach” into asset classes they may be unfamiliar with, such as master limited partnerships, he adds.

Advisors also benefit from the efficiencies that come with the fund-of-funds model, particularly for more tactical strategies, sponsors and analysts say. Investors often incur trade commissions and bid-ask spread costs in buying and selling ETFs on an exchange, which can add up when tracking a portfolio of many ETFs that rebalance frequently. Those trades can also have tax consequences, but an ETF can use in-kind creation and redemption to reduce the capital gains hit.

While some ETF-using advisors believe part of their value to clients is in evaluating the broad array of ETFs and using them as building blocks for custom portfolios, there are a growing number of investors new to ETFs who are looking for “simple solutions” that increasingly include ETFs of ETFs, says Todd Rosenbluth, director of mutual fund and ETF research at S&P Capital IQ. “They are gaining attention because they are doing the work for the investor or advisor in terms of sorting through the universe of ETFs based on whatever characteristics or outcome they are looking for.”

By comparison, more than $73 billion was held in ETF managed portfolios tracked by Morningstar at the end of 2015. But the ETF managed account business has shrunk nearly 30% from its peak of $103 billion at the beginning of 2014, in part due to poor performance and in part because of reverberations from the collapse of F-Squared Investments and management turnover at Windhaven — two of the biggest ETF strategists.

ETF sponsors have spent years forging close ties with this market, but also supplementing their efforts to help advisors put together ETF asset allocation strategies with paper models and individual ETFs. “We see utility in a lot of different mechanisms for asset allocation,” says Dave Mazza, head of research for SPDR ETFs and SSgA Funds.

“There’s going to be a group of clients out there that are not going to be interested in a one-stop-shopping solution for their client portfolios. But that doesn’t turn them off from being engaged with the [asset allocation] products,” either as a tool for smaller accounts or within a sleeve of a portfolio that mixes various asset allocation strategy funds with an advisor’s choice of ETFs or other products to serve as core holdings, he says.

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Thinking Tactically About Income

March 16, 2016

Scott Eldredge, Director of Fixed Income and Product Strategy at PowerShares, discusses a compelling new option for accessing multiple income strategies in one portfolio (DWIN):

For fixed income investors, we’re not in Kansas anymore. There is a witch’s brew of trends working against fixed income investors – including an economy mired in the weakest recovery since World War II, negative interest rates in Europe, the Federal Reserve having targeted 0% interest rates for seven consecutive years, quantitative easing, and the explosion of the Fed’s balance sheet – with no clear path for unwinding. These trends sow confusion, stress and uncertainty for investors struggling to construct a portfolio that can generate sufficient income.

A dearth of yield opportunities in a low interest rate environment

Given today’s low interest rates, fixed income investors clinging to a buy-and-hold mentality are hard-pressed to find yield opportunities – particularly those with aggregate bond allocations. This is because the aggregate bond universe, which has traditionally comprised a broad cross-section of investment grade securities, now looks strikingly similar to a US Treasury portfolio.

As the mortgage agencies like Fannie Mae and Freddie Mac have come under federal conservatorship, markets are pricing in little difference between agency risk and US Treasury risk. This has meant increasingly lower income for investors. How many of us could live off of a retirement income of around 2%? Well, that’s what the Barclays US Aggregate Bond Index currently has to offer.1

Pursuing income can mean taking on more risk

In a quest for higher income, many investors have taken on additional risk in the form of master limited partnerships (MLPs), high yield bonds and real estate investment trusts (REITs). These non-traditional sources of income may offer greater yields than aggregate bond portfolios, but can leave investors vulnerable to shifting market momentum – underscoring the need for credit diversification. By diversifying a non-aggregate income allocation across a broad range of investments with disparate drivers of return, investors can potentially enhance performance, while diluting the impact of market volatility.

So how does one do that? Through a “set it and forget it” allocation to a basket of income solutions with low correlation? Or is there an opportunity to be more tactical with income investing? The answer may lie in one’s interpretation of the following chart, which maps total returns by asset class over the past 10 calendar years:

This year’s winners can be next year’s losers: A decade of income performance (%)


Source: Bloomberg L.P., Barclays Capital, BofA Merrill Lynch as of Dec. 31, 2015. Data is from Dec. 31, 2006 through Dec. 31, 2015, and reflects calendar year performance. Past performance is no guarantee of future results. An investor cannot invest directly in an index. Agg. bonds are represented by Barclays US Aggregate Bond Treasury Index, EM bonds by JPM EMBI Global Index, Preferreds by S&P US Preferred Stock Index, US REITS by Wilshire US REIT Index, Bank loans by Credit Suisse Leveraged Loan Index, MLPs by Alerian MLP Index, Municipals by Barclays Municipal Bond Index, High yield corp. by Barclays US Corporate High Yield Index, IG corp. by Barclays US Corporate Investment Grade Index, Dividend growers by S&P 500 Dividend Aristocrats Index and High dividend payers by DJ US Select Dividend Index.

As you can see, what works well one year might not work so well the next. Sometimes a poor performer can jump to the top of the heap in a relatively short amount of time, and vice versa.

A potential solution to a static income allocation

As interest rates cycle and as credit markets fluctuate, there may be an advantage to a strategy that attempts to rotate out of the weakest-performing income segments. The PowerShares DWA Tactical Multi-Asset Income Portfolio (DWIN) is a newly launched smart beta exchange-traded fund (ETF) whose underlying index methodology seeks to do just that. DWIN tracks the Dorsey Wright Multi-Asset Income Index, which invests in other ETFs and rotates between income-oriented market segments based on relative strength and yield criteria. This means investors can access market segments with high current income potential, but also attempt to defend themselves from shifting market whims.

Here’s how it works. DWIN’s underlying index starts by ranking a universe of income-oriented ETFs based on relative strength, with the top 50% of these ranked again by yield. The five top-ranking ETFs are then given equal weighting. Constituents are evaluated monthly and replaced if not among the top-yielding ETFs.

DWIN is a multi-asset portfolio that offers exposure to both the equity and fixed income markets – including investment grade and high yield bonds, fixed-rate preferred shares, dividend paying equities, US Treasuries, MLPs and real estate investment trusts (REITs). The portfolio can even convert to up to 80% US Treasuries in cases of extreme market turbulence – offering the potential for upside participation and downside risk mitigation.2 We believe DWIN is a compelling potential one-ticket rotation solution – tailor made for today’s low interest rate environment.

Learn more about the PowerShares DWA Tactical Multi-Asset Income Portfolio (DWIN).

1 Barclays US Aggregate Bond Index current yield: 2.37%. Source: Bloomberg L.P., March 7, 2016
2 Periodically, US Treasuries will rank highest in relative strength. In these cases, fewer than
five ETFs may be held, and the Treasury allocation can be up to 80% of the fund.

Important information

The Barclays US Aggregate Bond Index is an unmanaged index considered representative of the US investment-grade, fixed-rate bond market.

Barclays US Aggregate Bond Treasury Index tracks the performance of Treasury securities, government agency bonds, mortgage-backed bonds and corporate bonds.

JPM EMBI Global Index is an unmanaged index which tracks the total return of US dollar-denominated debt instruments issued by emerging market sovereign and quasi-sovereign entities.

S&P US Preferred Stock Index represents the US preferred stock market.

Wilshire US REIT Index measures US publicly traded Real Estate Investment Trusts (REITs).

Credit Suisse Leveraged Loan Index represents tradable, senior-secured, US dollar-denominated, non-investment grade loans.

Alerian MLP Index is a composite of the 50 most prominent energy master limited partnerships calculated by Standard & Poor’s, using a float-adjusted market capitalization methodology.

Barclays Municipal Bond Index is an unmanaged index considered representative of the tax-exempt municipal bond market.

Barclays US Corporate High Yield Index is an unmanaged index considered representative of fixed-rate, non-investment grade debt.

Barclays US Corporate Investment Grade Index is an unmanaged index considered representative of publicly issued, fixed-rate, nonconvertible, investment grade debt securities.

S&P 500® Dividend Aristocrats Index tracks the performance of 40 companies in the S&P 500® Index that have had an increase in dividends for 25 consecutive years.

DJ US Select Dividend Index represents the United States’ leading stocks by dividend yield, subject to screens for dividend-per-share growth rate, dividend payout ratio and average daily dollar trading volume.

There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. The fund is subject to certain other risks. Please see the prospectus for more information regarding the risks associated with an investment in the fund.

Shares are not individually redeemable and owners of the shares may acquire those shares from the Fund and tender those shares for redemption to the Fund in Creation Unit aggregations only, typically consisting of 50,000 shares.

Beta is a measure of risk representing how a security is expected to respond to general market movements. Smart beta represents an alternative and selection index based methodology that may outperform a benchmark or reduce portfolio risk or both. Smart beta funds may underperform cap-weighted benchmarks and increase portfolio risk.

The momentum style of investing is subject to the risk that the securities may be more volatile than the market as a whole, or that the returns on securities that have previously exhibited price momentum are less than returns on other styles of investing.

The Fund is subject to the risks of the underlying funds. Market fluctuations may change the target weightings in the underlying funds and certain factors may cause the Fund to withdraw its investments therein at a disadvantageous time.

Fixed-income investments are subject to credit risk of the issuer and the effects of changing interest rates. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, causing its instruments to decrease in value and lowering the issuer’s credit rating.

The values of junk bonds fluctuate more than those of high quality bonds and can decline significantly over short time periods.

The risks of investing in securities of foreign issuers can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.

Most MLPs operate in the energy sector and are subject to risks relating to commodity pricing, supply and demand, depletion and exploration. MLPs are also subject the risk that regulatory or legislative changes could eliminate the tax benefits enjoyed by MLPs which could have a negative impact on the after-tax income available for distribution by the MLPs and/or the value of the portfolio’s investments.

Preferred securities may be less liquid than many other securities, and in certain circumstances, an issuer of preferred securities may redeem the securities prior to a specified date.

Investments in real estate related instruments may be affected by economic, legal, or environmental factors that affect property values, rents or occupancies. Real estate companies, including REITs or similar structures, tend to be small and mid-cap companies and may be more volatile and less liquid.

The Fund is non-diversified and may experience greater volatility than a more diversified investment.

About Dorsey, Wright & Associates, LLC (DWA)

The relative strength strategy is not a guarantee. There may be times where all investment and strategies are unfavorable and depreciate in value. Investors should not act on any recommendation (express or implied) or information in this material without obtaining specific advice from their financial advisor and should not rely on the information herein as the primary basis for investment decisions. There is no relationship between Dorsey, Wright & Associates, LLC (“Dorsey Wright”) and Invesco PowerShares (“PowerShares”) other than a license by Dorsey Wright to PowerShares of certain Dorsey Wright trademarks, tradenames, investment models, and indexes (the “DWA IP”). DWA IP has been created and developed by Dorsey Wright without regard to and independently of PowerShares, and/or any prospective investor. The licensing of any DWA IP is not an offer to purchase or sell, or a solicitation of an offer to buy any securities. 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 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. DWA and the information provider accept no liability to the recipient whatsoever whether in contract, in tort, for negligence, or otherwise for any direct, indirect, consequential, or special loss of any kind arising out of the use of this document or its contents or of the recipient relying on any such recommendation or information (except insofar as any statutory liability cannot be excluded). PowerShares® is a registered trademark of Invesco PowerShares Capital Management LLC, investment adviser. Invesco PowerShares Capital Management LLC (Invesco PowerShares) and Invesco Distributors, Inc., ETF distributor, are indirect, wholly owned subsidiaries of Invesco Ltd.

Investors cannot invest directly in an index.  Indexes have no fees.  The relative strength strategy is NOT a guarantee.  There may be times where all investments and strategies are unfavorable and depreciate in value.  Neither the information within this blog post, nor any opinion expressed, shall constitute an offer to sell or a solicitation or an offer to buy any securities, commodities, or exchange traded products.  This blog post does not purport to be a complete description of the securities or markets to which reference is made.  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.  ETFs may result in the layering of fees as ETF’s impose their own advisory and other fees.  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).

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Bring Some Sexy To Utilities ETFs

March 4, 2016

Benzinga on The PowerShares DWA Momentum ETF (PUI):

In addition to XLU, the PowerShares DWA Momentum ETF (ETF) (NYSE: PUI) has been enjoying the utilities sector resurgence this year. PUI, however, is a much different beast than traditional cap-weighted utilities ETF like XLU.

PUI tracks the Dorsey Wright Utilities Technical Leaders Index, which “is designed to identify companies that are showing relative strength (momentum),” according to PowerShares, the fourth-largest ETF issuer.

For size freaks, PUI probably was not on their radar until this year. The ETF has $116.6 million in assets under management, nearly $87.1 million of which has arrived this year. That makes PUI the fourth-best PowerShares ETF in terms of assets added.

As a momentum-based ETF, PUI is not exclusively allocated to large-caps. In fact, large-caps represent just over 23 percent of PUI’s weight, while small-caps account for nearly 31 percent of the fund.

PUI’s top 10 holdings include Duke Energy Corp (NYSE: DUK), NiSource Inc. (NYSE: NI) andWEC Energy Group Inc (NYSE: WEC).

Dorsey Wright is the index provider for PUI.  See www.powershares.com for more information.  The relative strength strategy is NOT a guarantee.  There may be times where all investments and strategies are unfavorable and depreciate in value.

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Meet This Year’s Best Consumer Staples ETF

January 2, 2016

Via MarketWatch:

Even with all the concern regarding higher interest rates, a scenario that was realized earlier this month, rate-sensitive consumer staples stocks and exchange traded funds have been solid performers in 2015. Two of the 14 Dow Jones Industrial Average Stocks that are up this year are staples stocks: Procter & Gamble Inc. PG, -0.82% and Wal-Mart Stores Inc. WMT, -0.62%

Add to that, the Consumer Staples Select Sector SPDR XLP, -1.12% and the Vanguard Consumer Staples ETF VDC, -1.10% are up 7.7 percent and 6.7 percent, respectively, this year. Those are solid performances, particularly in the face of rising interest rates, but those are from the best showings among staples ETFs. Honors for 2015’s best staples go to the PowerShares DWA Consumer Staples Momentum Portfolio PSL, -1.01% which is up 14 percent year-to-date.

PSL is a smart or strategic beta ETF, meaning it is not capitalization-weighted as are rivals such as XLP and VDC. That also means PSL is not dominated by the likes of Procter & Gamble and Wal-Mart as are XLP and traditional cap-weighted staples ETFs.
PSL’s stellar year-to-date showing relative to its cap-weighted performers could imply, to some investors, that significant risk is involved with betting on PSL over its more traditional rivals. However, that is not the case. Not only has PSL offered superior returns over standard consumer staples ETFs, the PowerShares offering has posted better risk-adjusted returns. For example, PSL’s volatility this year has been 14.6 percent, according to ETF Replay. That is 100 basis points in excess of VDC, but PSL has outpaced the Vanguard Staples ETF by 730 basis points.

PSL follows the Dorsey Wright Consumer Staples Technical Leaders Index, a benchmark that “is designed to identify companies that are showing relative strength (momentum), and is composed of at least 30 common stocks from the NASDAQ US Benchmark Index,” according to PowerShares, the fourth-largest U.S. ETF issuer.

PSL has swelled in popularity this year. When we highlighted the ETF in late September, it had less than $221 million in assets under management. Since then, PSL’s assets under management tally has surged north of $369 million. Only six PowerShares ETFs have added more new assets in 2015 than PSL.

PSL break from the norm among staples ETFs is okay because over the past year, the Dorsey Wright Consumer Staples Technical Leaders Index has offered nearly double the returns of the S&P 500 consumer staples index and over the past three- and five-year periods, PSL has topped that index. PSL started tracking the Dorsey Wright index early last year.

See www.powershares.com for a prospectus.  The relative strength strategy is NOT a guarantee.  There may be times where all investments and strategies are unfavorable and depreciate in value.

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SmartTrust Launches Dorsey Wright International Momentum Trust

October 20, 2015

PARSIPPANY, N.J., Oct. 20, 2015 /PRNewswire/ — Hennion & Walsh, a provider of investment services and an advocate for individual investors, today announced the launch of its International Momentum Trust further expanding its suite of proprietary SmartTrust® Unit Investment Trust (UIT) portfolios. Developed in partnership with Dorsey Wright, a registered investment advisory firm that specializes in providing comprehensive investment research and analysis through their Global Technical Research Platform, the trust will seek to provide equities investors with international exposure along with the possibility for capital appreciation.

“Today, as investors seek to achieve investment exposure in equity securities of foreign companies, the trust will be designed primarily on relative strength, a technical analysis indicator that records historic performance patterns,” said Kevin Mahn, Chief Investment Officer of SmartTrust®. “Dorsey Wright has established themselves as a leading advisor to financial professionals and we’re excited for the opportunity to share their superior portfolio design and research platform with our clients.”

The trust will seek to deliver its investment objective through Dorsey Wright’s Relative Strength methodology which will measure a security’s performance relative to other securities in the same industry, a competitive industry, a benchmark or a broad market index.  Relative strength is a momentum technique that relies on unbiased, unemotional and objective data rather than biased forecasting and subjective research.

“With U.S. equity markets reaching all-time highs in 2015 yet facing increasing uncertainty and volatility, investors seeking to diversify and identify new opportunities should consider widening their focus globally,” said Bill Walsh, Chief Executive Officer of Hennion & Walsh. “At Hennion & Walsh, we believe in the value of providing our investors with diversification across geography and asset class.”

SmartTrust® UITs offer diversified income and total return opportunities through innovative investment strategies. Assets grew by 27 percent year to date in 2014 while the number of Trusts outstanding grew by more than 38 percent over the same period. For more information about Hennion & Walsh’s SmartTrust® UIT products, please contact the firm’s Internal Support Desk at 888-505-2872, or visit  www.smarttrustuit.com

About Hennion & Walsh
Hennion & Walsh, a full service brokerage firm specializing in municipal bonds, was founded in 1990 by Richard Hennion and Bill Walsh. Their mission is to be the individual investor’s fiercest and most passionate advocate. Investment guides, webinars, seminars and online content are just some of the ways they help investors become better informed and make better investment decisions. The firm has built its reputation on developing strong, mutually beneficial relationships designed to last a lifetime, serving over 20,000 clients with brokerage accounts and managed portfolios. They are committed to providing individual investors with the institutional-quality service and guidance they believe they are entitled to. Additional information on Hennion & Walsh is available at www.hennionandwalsh.com.

About Dorsey, Wright & Associates, LLC
Dorsey, Wright & Associates is a registered investment advisory firm based in Richmond, Virginia. Since 1987, Dorsey Wright has been a leading advisor to financial professionals on Wall Street and investment managers worldwide. Dorsey Wright offers comprehensive investment research and analysis through their Global Technical Research Platform and provides research, modeling and indexes which apply Dorsey Wright’s expertise in Relative Strength to various financial products including exchange trade funds, mutual funds, UITs, structured products, and separately managed accounts. Dorsey Wright’s expertise is technical analysis. The Company uses Point & Figure Charting, Relative Strength Analysis, and numerous other tools to analyze market data and deliver actionable insights. In 2015, Dorsey Wright was acquired by Nasdaq, Inc. allowing Dorsey Wright to work towards even greater innovative solutions for its clients.

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The Under-Covered News

October 12, 2015

Truly something to be ecstatic about, via Nicholas Kristof of the NYT:

We journalists are a bit like vultures, feasting on war, scandal and disaster. Turn on the news, and you see Syrian refugees, Volkswagen corruption, dysfunctional government.

Yet that reflects a selection bias in how we report the news: We cover planes that crash, not planes that take off. Indeed, maybe the most important thing happening in the world today is something that we almost never cover: a stunning decline in poverty, illiteracy and disease.

Huh? You’re wondering what I’ve been smoking! Everybody knows about the spread of war, the rise of AIDS and other diseases, the hopeless intractability of poverty.

One survey found that two-thirds of Americans believed that the proportion of the world population living in extreme poverty has almost doubled over the last 20 years. Another 29 percent believed that the proportion had remained roughly the same.

That’s 95 percent of Americans — who are utterly wrong. In fact, the proportion of the world’s population living in extreme poverty hasn’t doubled or remained the same. It has fallen by more than half, from 35 percent in 1993 to 14 percent in 2011 (the most recent year for which figures are available from the World Bank).

Consumers of news would be well served to remember this reality—the news only tells part of the story and it is the part of the story that generally makes people depressed and think that the world is coming to an end.  From an investment perspective, the headlines of the day are very likely to lead an investor to do exactly the wrong thing at the wrong time.

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Best & Worst of Smart Beta in 2015

August 12, 2015

ETF.com takes a look at how Smart Beta ETFs have fared so far this year:

Smart-beta ETFs have been all the rage recently, attracting billions of dollars in inflows. These funds, which often share little in common other than the fact that they aim to outperform traditional, market-cap-weighted index funds, are extremely varied in their strategies. Unsurprisingly, just as varied as their strategies is their performance.

Since the start of 2015, there have been both big winners and big losers in the smart-beta space. That said, the top-performing smart-beta ETFs so far in 2015 do share some commonalities. Nine of the 10 funds on the list are related to either health care, Japan or Europe.

Our own PowerShares DWA Healthcare Momentum ETF (PTH) and PowerShares DWA NASDAQ Momentum ETF (DWAQ) receive some nice coverage in this article.

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 PDP and a suite of other Momentum ETFs at PowerShares.  See www.powershares.com for more information.

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Letting Winners Run

July 15, 2015

Great interview with Tammy DeRosier in IBD:

Tammy DeRosier enjoys baking peach cobblers and biscuits with her young daughter. As president of Dorsey Wright & Associates (DWA), she cooks up strategies to empower investors.

The firm’s specialty is technical analysis based on relative price strength — a method of evaluating the performance of investment choices against one another. It underlies both the “momentum” ETF suite from PowerShares and a best-performing ETF in 2015, a First Trust fund of funds.

DeRosier, 45, recently talked to IBD about Dorsey Wright’s philosophy and pipeline, as well as its recent acquisition by Nasdaq.

IBD: How is the DWA investment philosophy translated in the PowerShares DWA Momentum ETFs?

Tammy DeRosier: The wonderful thing about momentum, or relative strength investing, is that it is a systematic and rules-based system that fits perfectly in the ETF structure.

Every quarter, a universe of approximately 1,000 stocks is ranked from strongest to weakest, and the PowerShares DWA Momentum Portfolio’s (ARCA:PDP) underlying index is reconstituted to include the strongest 100. This allows strong stocks like Apple (NASDAQ:AAPL) to get into the portfolio, and more importantly, forces it to stay in as long as it is strong, so you can enjoy the ride.

At the same time, if a stock cannot perform, the strategy will rotate it out of the portfolio. In other words, we let the winners run and sell the laggards, which is oftentimes psychologically hard to do. So putting that strategy into an ETF forces an investor to stay within the rule set.

IBD: Do momentum-based strategies underperform in volatile or bear markets? When do they lag?

DeRosier: It’s always important for investors to know what a strategy’s Achilles heel is; and every strategy has one. For relative strength or momentum investing, the two periods when you can experience a lag in performance is during a choppy or trendless market or during leadership changes.

Think about your car — if you want to shift from first to second gear, you have to let off the gas (and) push in the clutch, and you actually lose some speed just before you shift into that next gear. Relative strength is much the same, as the new leadership is rotating into the portfolio and old leadership is falling out.

These times don’t necessarily come during volatile or bear markets, though. Sometimes you could be having a bear market in a couple of sectors and a bull market in other sectors, and a relative strength or momentum portfolio will excel during that period.

This year is a perfect example of how the energy space in general has struggled, while the health care and technology sectors have done well.

IBD: Isn’t capturing momentum tricky — part of the moves may be beyond grasp by the time they are identified?

DeRosier: We never try and catch the exact bottom of any market, sector or stock trend. Instead, we aim to let that stock hit the bottom and begin to move up. That shows some potential sustainability to the trend. If we can capture the majority of the up move, that is all you need in order to produce positive portfolio performance.

What’s actually most interesting about PDP is the fact that it provides a vehicle for investors to hold the “high fliers” as a portfolio. On its own, any one of these stocks might be too volatile, but as a portfolio, it can work very well. The systematic approach forces investors to stay with the winners and sell the losers.

IBD: You believe the relative strength methodology can beat the market. Yet PDP has performed roughly in line with the Russell Mid-Cap Growth benchmark over one-, three- and five-year periods. Why?

DeRosier: On a five-year trailing total return basis, PDP ranks in the top 1% — or, said another way, PDP has outperformed 99% of the funds in its category according to Morningstar, so we are quite proud of how the ETF has performed. High relative strength stocks have moved higher in fits and starts over the last five years or so. We are currently slightly ahead of the Mid-Cap Growth Index over the periods you mentioned, and we have a bigger spread over the much broader S&P 500 Index.

Conditions for momentum stocks have been much more favorable recently, so we are very happy with where we are sitting. The performance spread between leading and lagging stocks has started to move upward again after a long period of sideways movement. Whenever the spread moves higher, our strategies have greater potential to outperform.

If this trend can continue, we would expect our strategies to continue to perform well vs. the broad market.

IBD: How can smart beta ETFs be combined in a portfolio?

DeRosier: Investors can mix and match philosophies together by actually looking at the basis of the strategy. For instance, momentum and low volatility, or value, pair together well. Typically when one is zigging, the other is zagging. That gives the overall portfolio a smoother ride.

IBD: First Trust Dorsey Wright Focus 5 (NASDAQ:FV) has racked up assets of $3.96 billion in under two years. Why did Focus 5 resonate with ETF investors? What’s unique about how the DWA relative strength ranking system is applied in FV?

DeRosier: The relative strength rules are the same for all the indices we construct, including the index that underlies FV. The index or model includes the strongest from the inventory, and the weakest from the inventory sit on the bench. Much like a pitcher in baseball, if he starts to walk some batters or they get hits off him, the manager will go to the bullpen and call in another pitcher. Our rules work the same way. A member of the index can have a walk or two, but a consistent pattern of weakness means the next strongest will come in while that sector or stock goes to the bench.

I think the appeal of FV, much like all of the ETFs following DWA indexes, is the transparency of the rules and the underlying strategy being based in the irrefutable laws of supply and demand.

(Editor’s note: FV tracks an index that analyzes the relative price strength of all First Trust sector- and industry-based ETFs, and selects the top five with the highest price momentum.)

IBD: What does the acquisition by Nasdaq mean for your company?

DeRosier: Nasdaq offers us the resources to grow our business into a truly global platform that goes far beyond the core businesses we have developed in the last 25 years.

IBD: What’s in the pipeline for ETFs and mutual funds?

DeRosier: We always have interesting strategies that we publish on our research website. One that we have incubating is a combination of factors such as low volatility and the strongest relative strength of those names.

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FV In The News

July 6, 2015

ETF Trends with some high praise for FV:

Among newer exchange traded funds, particularly those that are 12 to 18 months old, the First Trust Dorsey Wright Focus 5 ETF (NasdaqGM: FV) is the stuff ETF legends are made of.

The First Trust Dorsey Wright Focus 5 ETF debuted in March 2014 and since has been on a torrid pace of asset-gathering rivaled by few new ETFs. FV needed less than nine months of work to top $1 billion in assets and has needed just seven months to more than triple in size from there. Today, FV has $3.8 billion in assets under management.[Another Good Year for New ETFs]

More important FV’s asset-gathering acumen is whether or not its performance and its 0.94% annual fee, which is high among ETFs, has merited all that adulation from advisors and investors. The answer is “yes.” Since coming to market, FV is up 23%, more than double the 10.6% returned by the S&P 500 over the same period.

“The Dorsey Wright Focus Five Index is designed to provide targeted exposure to the five First Trust sector and industry based ETFs that DWA believes offer the greatest potential to outperform the other ETFs in the selection universe. To construct the index, Dorsey, Wright & Associates (DWA) begins with the universe of First Trust sector and industry ETFs. Using the DWA relative strength ranking system, the ETFs are compared to each other to determine inclusion by measuring each ETF’s price momentum relative to other ETFs in the universe,” according to Captain John Charts. “Think of this as an ETF that contains the top five relative strength places to be, inside one ETF using the First Trust ETF products.”

The relative strength strategy is NOT a guarantee.  There may be times where all investments and strategies are unfavorable and depreciate in value.  See www.ftportfolios.com for more information.  Dorsey Wright is the index provider for FV.

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Bloomberg on Point & Figure

April 24, 2015

Good profile by Bloomberg yesterday:

The Nasdaq Stock Market has always been associated with cutting edge technology, whether it be for the companies it lists or the systems used to match buyers and sellers on the first all-electronic exchange.

Yet interestingly enough, one of the lines of business that Nasdaq OMX Group chose to highlight in its earnings report today has its roots in a technique for analyzing stock prices that was championed by the likes of Charles Dow more than a century ago. During the first quarter, Nasdaq bought Dorsey Wright & Associates LLC, which boasts it is “known on Wall Street as the experts in the Point & Figure methodology.”

In an era of heat maps, three-dimensional volatility surfaces and countless other highfalutin technical tools, point-and-figure charts appear adorably quaint at first blush. They were originally done with pencil, graph paper and stock prices taken from a newspaper. The charts look like some sort of extreme version of tic-tac-toe, using columns of Xs to represent rising price trends and Os to represent falling prices.

“A rising series of X’s and O’s tells us that demand is getting stronger and supply is getting weaker — that is what we want to see in stocks, ETFs and funds we own,” is how Dorsey Wright explains how to use the charts. While P&F chart readers look for about 11 identifiable patterns in the charts, Dorsey Wright says they are just variations of two basic patterns: the “double top” buy signal when a column of X’s exceeds a previous column of X’s and a “double bottom” sell signal when a column of O’s exceeds a previous column of O’s.

Simple, right? So easy even a 19th century pencil pusher could do it! Well, maybe not quite that simple. Dorsey Wright applies the charts to ratios of various securities to study the relative strength between them and identify those with the best momentum. And it uses computers that calculate point-and-figure trends and automatically rebalance indexes accordingly. As Anthony Effinger and Eric Balchunas wrote in Bloomberg Markets Magazine, if Tom Dorsey and his team got abducted by aliens, the algorithms wouldn’t even notice. “Once a quarter, we press a button,’’ Dorsey told the magazine. “We just need someone to press the button.’’

But here’s the thing: exchange traded funds based on Dorsey Wright indexes are raking in the cash. In just the first two months the index business was owned by Nasdaq, assets tracking Dorsey Wright grew 37 percent, the company said today.

The 13-month-old First Trust Dorsey Wright Focus 5 ETF (ticker: FV) attracted $1.2 billion in inflows last year and has already topped that amount this year with almost $1.5 billion. The ETF, which tracks an index using the point-and-figure relative-strength approach to identify the five top-ranking ETFs from First Trust, is up 11 percent so far in 2015 and about 23 percent since its inception in March 2014. Its holdings include the First Trust NYSE Arca Biotechnology Index Fund, another health-care fund and ETFs holding Internet and consumer stocks.

Another ETF tracking a Dorsey index, the $1.9 billion PowerShares DWA Momentum Portfolio (ticker: PDP), is up 7 percent this year and has attraced $218 million. Its top holdings currently are Jazz Pharmaceuticals PLC followed by Apple Inc. and O’Reilly Automotive Inc. A PowerShares ETF using the Dorsey approach to buy small caps (ticker: DWAS) has risen more than 6 percent and attracted $134 million this year.

Those three ETFs have helped push the assets tracking Dorsey Wright indexes to $7 billion, according to Tammy DeRosier, president of the DWA business at Nasdaq. She credits the growth with the importance of sector rotation as the bull market ages, and the ease with which it can now be down with an ETF.

“Stocks and sectors rotate in and out of season just like produce in the supermarket does,” DeRosier said in a phone interview. “We are like a chef that’s going to the farmer’s market and creating that menu, with the freshest and best in season.”

Of course, the freshest momentum in the stock market has been known to wilt pretty quickly, and not necessarily at a time that corresponds with a quarterly rebalancing. But at least for the moment, there is a lot of interest in what all those Xs and Os are spelling.

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DWAT in the News

February 17, 2015

From ETF Trends:

A growing number of exchange traded funds launched over the past year are using the ETF of ETFs approach, meaning these funds are comprised of other ETFs.

The Arrow DWA Tactical ETF (DWAT) is one such fund. The Arrow DWA Tactical ETF is Arrow’s first actively managed ETF and second ETF after the popular Arrow Dow Jones Global Yield ETF (GYLD) .

Importantly, DWAT’s ETF of ETF approach is working for investors. The ETF has slightly outpaced the S&P 500 this year and touched a new high last Friday. The actively managed DWAT, which has an annual expense ratio of 1.52%, “seeks to achieve its investment objective by implementing a proprietary Relative Strength (RS) Global Macro model managed by Dorsey Wright & Associates (DWA),” according to ArrowShares. DWAT came to market last October. [ArrowShares Adds a Second ETF]

The combination of active management and a methodology rooted in relative strength allows DWAT to build a diversified portfolio of well-known, and more importantly, strong performing ETFs. For example, the Health Care Select Sector SPDR (XLV) , the largest health care ETF, is currently DWAT’s largest holding at a weight of nearly 13.7%.

With a combined 19.7% weight to the iShares Cohen & Steers Realty Majors (ICF) and the SPDR Dow Jones REIT ETF (RWR) , DWAT offers ample leverage to a low interest rate environment. However, that does not imply DWAT is vulnerable to rising interest rates.

The Technology Select Sector SPDR (XLK) and the Financial Select Sector SPDR (XLF) have been two of the sturdier performers at the sector level as 10 -year Treasury yields have recently jumped. Additionally, XLF and XLK give DWAT a bit of a value tilt because financials and technology are two of the more attractively valued sectors relative to the S&P 500. [High Beta ETFs Time to Shine]

Conversely, DWAT does not hold richly valued consumer staples, energy or utilities sector ETFs. DWAT has another advantage that makes the ETF worth considering if equity markets retreat: The fund can also invest up to 30% in inverse U.S. equity exposure in the event of a prolonged market drawdown,” according to a statement issued by ArrowShares.

The Vanguard Mid-Cap Value ETF (VOE) and the Materials Select Sector SPDR (XLB) were DWAT holdings when the ETF first came to market, but DWAT has since parted ways with those funds.

Arrow DWA Tactical ETF


The relative strength strategy is NOT a guarantee.  There may be times where all investments and strategies are unfavorable and depreciate in value.  See www.arrowshares.com for more information.  Dorsey Wright is the signal provider for DWAT.

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DWA Momentum ETFs added to Schwab OneSource

January 26, 2015

ETF Trends reports that 4 of our ETFs (PDP, PIE, PIZ, and DWAS) will be added to the Schwab OneSource (commission-free) platform on February 1st:

Charles Schwab (NYSE: SCHW), the largest discount broker, said today it will expand its Schwab ETF OneSource lineup of commission-free exchange traded funds to nearly 200 offerings starting on Feb. 1.

On that date, Schwab clients will be able to access 198 ETFs across 64 Morningstar categories on a commission-free basis. Schwab does not have any enrollment requirements or charge early redemption fees for the ETFs in the program – two key differentiators for investors comparing similar commission-free ETF programs,according to a statement issued by California-based Schwab earlier Monday.

OneSource, the largest commission-free ETF platform on the market today, has been a significant driver of ETF asset growth for Schwab. Last year, ETF assets custodied at Schwab surged 18% to $231 billion, according to the firm’s fourth-quarter and 2014 snapshot released. [ETF Assets Continue Flowing to Schwab]

“Schwab ETF OneSource has $38 billion in assets under management as of December 31, 2014. Flows into ETFs in the program were over $10 billion in 2014, representing 43 percent of the total ETF flows at Schwab,” the company said in the statement.

In September, Schwab unveiled a massive expansion of its Schwab ETF OneSource commission-free ETF platform by adding 65 new ETFs and seven new issuers.

New providers joining OneSource are ALPS, Direxion Investments, Global X Funds, IndexIQ, PIMCO, ProShares and WisdomTree (NasdaqGS: WETF). Those firms join OneSource’s original members State Street (NYSE: STT), Guggenheim, Invesco’s (NYSE: IVZ) PowerShares, ETF Securities, U.S. Commodity Funds and Schwab’s own lineup of ETFs. [Schwab Bolsters Commission-Free ETF Lineup]

The new additions to OneSource come courtesy of five of the platforms current providers, Direxion, PowerShares, ProShares, State Street and WisdomTree.

OneSource’s newest ETFs include the Direxion iBillionaire Index ETF (NYSEArca:IBLN)PowerShares DWA Emerging Markets Momentum Portfolio (NYSEArca:PIE)PowerShares DWA SmallCap Momentum Portfolio (NYSEArca: DWAS),ProShares Morningstar Alternatives Solution ETF (NYSEArca: ALTS)SPDR MSCI ACWI Low Carbon Target ETF (NYSEArca: LOWC) and theWisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEArca: USDU).

one source

Table Courtesy: Charles Schwab

ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

Dorsey Wright is the index provider for PDP, PIE, PIZ, DWAS and a suite of other momentum ETFs with PowerShares.  See www.powershares.com for more information.

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Index Changes Bring Success for PowerShares DWA Sector ETFs

June 17, 2014

ETF Trends has a nice article about the strong growth in assets in the PowerShares DWA Sector ETFs since the changeover in Februrary:

Invesco PowerShares, the fourth-largest U.S. ETF issuer, made significant changes to its lineup of sector ETFs in February when it transitioned nine sector funds along with the PowerShares DWA NASDAQ Momentum Portfolio (DWAQ) to Dorsey Wright indices based on momentum and relative strength strategies. [Index Changes for 10 PowerShares ETFs]

Prior to the conversion of those 10 funds to Dorsey Wright indices, Invesco PowerShares had a long-standing relationship with the index provider that includes successful ETFs such as the $1.26 billion PowerShares DWA Momentum Portfolio (PDP) and $465.3 million PowerShares DWA SmallCap Momentum Portfolio (DWAS) .

Since the index conversions, the nine PowerShares sector ETFs, a group that includes the PowerShares DWA Healthcare Momentum Portfolio (PTH) and the PowerShares DWA Industrials Momentum Portfolio (PRN) , have gained nearly $85 million in new assets, Invesco PowerShares said in an interview with ETF Trends.

Those robust inflows indicate advisors and investors were not shaken by the March/April sell-off in momentum stocks despite the fact that each of the nine PowerShares sector ETFs has “momentum” in their names.

Past performance is no guarantee of future returns.  These relative strength strategies are NOT a guarantee.  There may be times where all investments and strategies are unfavorable and depreciate in value.  See www.powershares.com for more information.

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Lipper Fund Awards 2014: ASM Syariah Aggressive Best Fund Over 3 Years

March 7, 2014

Momentum works all over the world!  We subadvise a fund for a bank in Malaysia that invests in Syariah Compliant Malaysian equities.  That fund just won the Lipper Fund Award for being the best Malaysian Equity fund over the last three years.  We certainly aren’t experts in analyzing the financials of companies in the Far East, but price is the same all over the world.  With a momentum strategy, you can succeed in many different markets and asset classes without specialized knowledge of the fundamentals of each country.


Dorsey Wright is the sub-advisor for the ASM Syariah Aggressive fund.  Past performance is no guarantee of future returns.

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The Growing Case Against ETFs

February 21, 2014

That’s the title of a Marketwatch article by mutual fund columnist Chuck Jaffe.  I have to admit that usually I like his columns.  But columns like this make me nuts!  (See also The $ Value of Patience for an earlier rant on a similar topic.)

Here’s the thesis in a nutshell:

…safe driving comes down to a mix of equipment and personnel.

The same can be said for mutual funds and exchange-traded funds, and while there is growing consensus that ETFs are the better vehicle, there’s growing evidence that the people using them may not be so skilled behind the wheel.

The article goes on to point out that newsletters with model portfolios of mutual funds and ETFs have disparate results.

Over the last 12 months, the average model portfolio of traditional funds—as tracked by Hulbert Financial Digest—was up 20.9%, a full three points better than the average ETF portfolio put together by the same advisers and newsletter editors. The discrepancy narrows to two full percentage points over the last decade, and Hulbert noted he was only looking at advisers who run portfolios on both sides of the aisle.

Hulbert posited that if you give one manager both vehicles, the advantages of the better structure should show up in performance.

It didn’t.

Hulbert—who noted that the performance differences are “persistent” — speculated “that ETFs’ advantages are encouraging counterproductive behavior.” Effectively, he bought into Bogle’s argument and suggested that if you give an investor a trading vehicle, they will trade it more often.

Does it make any sense to blame the vehicle for the poor driving?  (Not to mention that DALBAR data make it abundantly clear that mutual fund drivers frequently put themselves in the ditch.)  Would it make sense to run a headline like “The Growing Case Against Stocks” because stocks can be traded?

Mutual funds, ETFs, and other investment products exist to fulfill specific needs.  Obviously not every product is right for every investor, but there are thousands of good products that will help investors meet their goals.  When that doesn’t happen, it’s usually investor behavior that’s to blame.  (And you’re not under any obligation to invest in a particular product.  If you don’t understand it, or you get the sinking feeling that your advisor doesn’t either, you should probably run the other way.)

Investors engage in counterproductive behavior all the time, period.  It’s not a matter of encouraging it or not.  It happens in every investment vehicle and the problem is almost always the driver.  In fact, advisors that can help manage counterproductive investor behavior are worth their weight in gold.   We’re not going to solve problems involving investor behavior by blaming the product.

A certain amount of common sense has to be applied to investing, just like it does in any other sphere of life.  I know that people try to sue McDonald’s for “making” them fat or put a cup of coffee between their legs and then sue the drive-thru that served it when they get burned, but whose responsibility is that really?  We all know the answer to that.

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PowerShares & Dorsey Wright Expand Momentum ETFs

December 19, 2013

Building upon the success of our current line-up of Momentum ETFs, PowerShares announces a new suite of Momentum Sector ETFs and a Nasdaq Momentum ETF:

On December 17th, the Board of Trustees approved name, investment objective, underlying index, and investment policy and strategy changes for the following ETFs. These changes are scheduled to take effect on February 19, 2014:


(click to enlarge)

“As with our existing PowerShares DWA Momentum ETF lineup, these portfolios will be based on momentum strategies as measured by Dorsey Wright’s definition of relative strength characteristics,  which can be a powerful tool for stock selection,” said Lorraine Wang, Invesco PowerShares global head of ETF products and research. “The momentum indexes were developed by Dorsey Wright who we believe remains a leader in relative strength investing.”

Very exciting news!  We will be talking much more about these new ETFs in the coming weeks.

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PIZ In The News

November 25, 2013

From “A Momentum ETF Searches for More Upside” by ETF Trends:

Exchange traded funds using intelligent indexing or so-called smart beta strategies have come into the limelight this year as investors have poured over $45 billion into such ETFs and that was as of the end of October.

While “smart beta” may appear to be a new buzz-phrase, many of the ETFs that subscribe to non-market capitalization-weighted strategies have been around for a while. The PowerShares DWA Developed Markets Momentum Portfolio (PIZ) is a prime example.

PIZ follows the same relative strength methodology as other well-known PowerShares ETFs that track Dorsey Wright indices, such as the PowerShares DWA Emerging Markets Momentum Portfolio (PIE) and the PowerShares DWA SmallCap Momentum Portfolio (DWAS) , one of this year’s most successful small-cap ETFs. [Use This ETF for Rising Rates Protection]

PIZ has already surged 26% this year, but this ex-U.S. developed markets play may have more upside to come.


Past performance is no guarantee of future returns.  See www.powershares.com for more information.

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Andy Hyer on Money Truth with Michael Klonsky

November 20, 2013

Click here for my recent appearance on the Money Truth radio show with Michael Klonsky.

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Stock Market Sentiment Review

November 19, 2013

I’m still getting back into the swing of things after having the flu most of last week.  In the midst of my stock market reading, I was struck by an article over the weekend from Abnormal Returns, a blog you should be reading, if you aren’t already.  The editor had a selection of the blog posts that were most heavily trafficked from the prior week.  Without further ado:

  • Chilling signs of a market top.  (The Reformed Broker)
  • Ray Dalio thinks you shouldn’t bother trying to generate alpha.  (The Tell)
  • Ten laws of stock market bubbles.  (Doug Kass)
  • How to teach yourself to focus.  (The Kirk Report)
  • Are we in a bubble?  (Crossing Wall Street)
  • Josh Brown, “If the entities in control of trillions of dollars all want asset prices to be higher at the same time, what the hell else should you be positioning for?”  (The Reformed Broker)
  • Guess what stock has added the most points to the S&P 500 this year? (Businessweek)
  • Everything you need to know about stock market crashes.  (The Reformed Broker)
  • Jim O’Neil is swapping BRICs for MINTs.  (Bloomberg)
  • How to survive a market crash.  (Your Wealth Effect)


I count five of the top ten on the topic of market tops/bubbles/crashes!

Markets tend to top out when investors are feeling euphoric, not when they are tremendously concerned about the downside.  In my opinion, investors are still quite nervous—and fairly far from euphoric right now.

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DWAS: “Soaring Small-Cap ETF”

October 14, 2013

Tom Lydon at ETF Trends takes note of the PowerShares DWA Small-Cap Momentum Portfolio:

The PowerShares DWA SmallCap Momentum Portfolio (DWAS) is one of this year’s top-performing small-cap ETFs and that is saying something because 2013 has been kind to smaller stocks.

DWAS is 16 months old and in that time has accumulated over $410 million in assets under management while returning 40.2%. Over that time, the Dorsey Wright SmallCap Technical Leaders Index has handily outpaced rival benchmarks.

See www.powershares.com for more information.  The Dorsey Wright SmallCap Momentum Index is calculated by Dow Jones, the marketing name and a licensed trademark of CME Group Index Services LLC (“CME Indexes”). “Dow Jones Indexes” is a service mark of Dow Jones Trademark Holdings LLC (“Dow Jones”).  Products based on the Dorsey Wright SmallCap Momentum IndexSM, are not sponsored, endorsed, sold or promoted by CME Indexes, Dow Jones and their respective affiliates make no representation regarding the advisability of investing in such product(s).  Past performance is no guarantee of future returns.

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DWAS (PowerShares DWA SmallCap TL Index) Passes One-Year Mark

July 24, 2013

And what a year it was:

CHICAGO, IL–(Marketwired – Jul 24, 2013) – Invesco PowerShares Capital Management LLC, a leading global provider of exchange-traded funds (ETFs), today celebrates the one-year anniversary of the PowerShares DWA SmallCap Technical Leaders™ Portfolio (DWAS). Listed July 19, 2012, the PowerShares DWA SmallCap Technical Leaders Portfolio is part of the broad suite of DWA Technical Leaders™ ETFs covering US, developed and emerging market segments.

Since inception, the PowerShares DWA SmallCap Technical Leaders Portfolio (DWAS) has outperformed the Russell 2000 Index market-cap weighted benchmark by a margin of 9.44%. For the one-year period ending July 19, 2013, DWAS achieved a total return of 41.84% based on NAV, outperforming the Russell 2000 Index which had a total return of 32.40% during the same period. (Note:total return figures include all dividends).1

“The PowerShares DWA SmallCap Technical Leaders Portfolio (DWAS) is the small-cap complement to the PowerShares DWA Technical Leaders Portfolio (PDP),” said Andrew Schlossberg, head of global ETFs. “Together with the PowerShares DWA Emerging Markets Technical Leaders Portfolio (PIE), and PowerShares DWA Developed Markets Technical Leaders Portfolio (PIZ) investors can efficiently tap the alpha-seeking potential of momentum factor-based ETFs globally.2As the leading provider in smart beta ETFs,3 we see a lot of potential for focused factor-based strategies to help investors achieve their goals, whether it’s seeking to enhance returns, reduce risk, or both.”

“We are proud to partner with Invesco PowerShares on momentum factor-based ETFs, and look forward to a long lasting relationship as we expand our global presence,” said Tom Dorsey, president and CEO of Dorsey, Wright & Associates, LLC.

See www.powershares.com for more information. The Dorsey Wright SmallCap Technical Leaders Index is calculated by Dow Jones, the marketing name and a licensed trademark of CME Group Index Services LLC (“CME Indexes”). “Dow Jones Indexes” is a service mark of Dow Jones Trademark Holdings LLC (“Dow Jones”). Products based on the Dorsey Wright SmallCap Technical Leaders IndexSM, are not sponsored, endorsed, sold or promoted by CME Indexes, Dow Jones and their respective affiliates make no representation regarding the advisability of investing in such product(s). Past performance is no guarantee of future returns.

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The Rise of Smart Beta

July 8, 2013

The Economist weighs in on one of our favorite trends:

INVESTORS face a quandary. Cash offers a return of virtually zero in many developed countries; government-bond yields may have risen in recent weeks but they are still unattractive. Equities have suffered two big bear markets since 2000 and are wobbling again. It is hardly surprising that pension funds, insurers and endowments are searching for new sources of return.

Step forward “smart beta”, the latest bit of jargon from the fund-management industry. “Alpha” is the skill required to choose individual assets that will outperform the market; “beta” is the return achieved from exposure to the overall market, for example via an index fund. “Smart beta” is an approach that tries to enhance the return from tracking an asset class by deviating from the traditional “cap-weighted” approach, in which investors simply buy shares or bonds in proportion to their market value.

The sector is still small: there is just $142 billion in smart-beta funds, compared with more than $2 trillion stashed in hedge funds. But the concept is catching on. According to State Street Global Advisors, smart-beta funds received inflows of $15 billion in the first quarter of 2013, up by 45% on the same period a year earlier.

Such enthusiasm is another sign that the quants are taking over. Traditional fund managers were able to charge a fee for their alleged skill and judgment. The quants are showing that when such managers did outperform, the excess return was driven by factors that can be identified and commoditised. Fees for smart-beta funds tend to be higher than those charged by cap-weighted index funds but far lower than those charged by other managers.

There is a variety of smart-beta approaches. The simplest is to give each market constituent equal weight. If there are 100 stocks, then each would have a weighting of 1%. A second approach, dubbed “fundamental indexing”, is to weight each company by its financial characteristics—sales, dividends, assets or cashflow. A third is to weight the index in terms of the volatility of the stocks, with the least volatile being favoured. A fourth is to use the “momentum effect” to buy stocks that have recently risen in price. That’s just for starters.

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PIE: “Heat-Seeking Predator”

May 29, 2013

You’ve got to check out this video of a Bloomberg analyst putting up scenes from Predator while talking about our PowerShares DWA Emerging Markets Technical Leaders ETF (PIE).  Starts at the 1 hour 15 minute mark.  PIE is getting a lot of attention this year due to its large outperformance versus other emerging market ETFs.


Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss. See www.powershares.com for more information. A list of all holdings for the trailing 12 months is available upon request.

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Bloomberg: PIE “Laps Its Rivals”

May 27, 2013

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.

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