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

dwat1 DWAT in the News

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 DWA Momentum ETFs added to Schwab OneSource

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.

malasia1 Lipper Fund Awards 2014: ASM Syariah Aggressive Best Fund Over 3 Years

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:

Momentum PowerShares & Dorsey Wright Expand Momentum ETFs

(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.

PIZ11 PIZ In The News

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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Tom Dorsey: ‘ETF Alchemy’ Is The Future

May 18, 2013

Where is the ETF industry headed?  Tom Dorsey answers in this Q&A with IndexUniverse.

IU.com:In the first four months of 2013, asset gathering for U.S. ETFs was in the neighborhood of $64 billion, and on pace to beat 2012’s record of $188 billion. Are you surprised? Is the sky the limit? How far is this ETF juggernaut going to go?

Dorsey: Well, I don’t think the sky is going to be the limit. I don’t know that there are any more ETFs that anyone can bring out that will be the new fandango. The key word here is a phrase I coined: “ETF alchemy.”

IU.com:ETF alchemy?

Dorsey: Think about this for a second: If I take H2 and I add O, what do I get?


Dorsey: Yes, water. Each one of those two elements is separate. But when I combine the two, I come up with a substance—water—that you can’t live without. Each one separately is not as good as the two combined. And the concept here is, What’s out there in terms of ETFs I can combine together to make a better product?

Take for instance the Standard & Poor’s Low Volatility Index—and if you add that to PDP, which is our Technical Leaders Index, and combine the two, it’s like taking two glasses of water and pouring them into one bigger glass of water, 50-50. I end up with a better product than either one of them separately.

You’ll find this as we go along: the ability to combine different ETFs to create a better unit where the whole is better than the sum of its parts.

A little later in the interview, Tom Dorsey speaks to just how important the ETF has been to the industry:

IU.com:So that’s really the first ETF.

Dorsey: Yes, and I can’t tell you how many seminars I have taught to professionals on ETFs and the eyes that widen and the lives that change once they understand it and understand how to use it; it tells me we’re on the right path and this is the exact right product.

Like I’ve said to you before, it’s probably the most important product ever created in my 39 years in this business. And I believe back then when I talked to you that we’re in the first foot of a 26-mile marathon.

Dorsey Wright is the index provider for PDP.  For more information, please see www.powershares.com.

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Momentum: “A Powerful Way To Enhance Returns”

April 10, 2013

Morningstar does a pretty deep dive into momentum in their article Does Momentum Investing Work?  I highly recommend reading the whole article as it covers some excellent long-term studies of momentum.  It also has a nice profile of our PowerShares DWA Technical Leaders ETF (PDP).

While practitioners have been exploiting this relationship for decades, the idea has gained broad acceptance in the academic community only within the past 20 years. Momentum runs counter to the predictions of the efficient market hypothesis, but the evidence is too overwhelming to ignore.

Included in their article was the following study of momentum on U.S. and global stocks:

The tables below illustrate the momentum effect among large-cap U.S. and global stocks. Each column represents a fifth of the total number of stocks in the sample, which are ranked by their momentum. While there is not a linear relationship between the momentum quintiles, stocks with the highest momentum consistently outperform those in the lowest momentum quintile. Small-cap stocks tend to exhibit a stronger momentum effect. However, they can be more expensive to trade.

french Momentum: A Powerful Way To Enhance Returns

I also enjoyed this part about how the persistence of excess returns from momentum strategies continues to baffle people:

This evidence creates a puzzle. If the market were efficient, a simple trading rule should not produce superior returns. Arbitrage is a powerful force that should eliminate any excess profits, and yet, momentum has persisted 20 years after it was first widely published. Perhaps more troubling to disciples of Ben Graham and Warren Buffett, momentum appears to be at odds with decades of research, which suggest that stocks trading at low valuations tend to outperform.

The article also makes a strong case for why momentum makes a better companion for value than does growth:

In their paper, “Value and Momentum Everywhere,” Asness, Moskowitz, and Pedersen found that momentum worked well when value didn’t, and vice versa. Because they are two sides of the same coin, each with excess returns, combining value and momentum in a portfolio can offer powerful diversification benefits.

It’s not necessary, or advisable, to abandon value investing to benefit from momentum. Instead, momentum may be a good substitute for investors’ growth allocations. Momentum offers higher expected returns than growth and tends to be less correlated with value. The chart below compares the performance of a portfolio consisting equal weights in the Russell 1000 Value and Growth indexes, with a portfolio that replaces the growth allocation with the AQR Momentum Index. The two portfolios have similar volatility, but the value and momentum portfolio offers slightly better absolute and risk-adjusted returns.

momentum value Momentum: A Powerful Way To Enhance Returns

Finally, I agree with Morningstar’s assessment of why the excess returns from momentum are likely to persist:

While a diversified and systematic momentum strategy can offer a powerful way to enhance returns, selecting a few stocks on the 52-week high list is a very bad idea. It is difficult to anticipate when a run will end and there may be no greater fool to bail you out. Although momentum is a short-term phenomenon, it is best suited for long-term investors. It won’t always work, but there’s a good chance that a disciplined momentum strategy will continue to outperform over the long term. After all, investor behavior won’t change overnight.

HT: Abnormal Returns

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Smart Beta Gains Momentum

April 8, 2013

Reuters reports that the $35 trillion global pension fund industry continues its move into “Smart Beta” ETFs:

Frustrated by little or no extra gains from costly active investing, many are now looking at more passive, cheaper and simpler strategies.

Often called “Smart Beta”, one approach aims to follow certain benchmark indices passively but allow investors to tilt weightings themselves based on their preferences such as volatility or momentum, allowing them outperform the main index.

Smart beta is half way between active and passive investing. For example, an investor can take the S&P 500 index <.SPX> but overweight stocks with lower volatility to create a new smart index. Investing in this has potential to outperform the original benchmark index and is cheaper than paying an active manager to trade S&P stocks.

Our own PowerShares DWA Technical Leaders ETF (PDP), was among the first relative strength (momentum) ETFs available—began trading on March 1, 2007.  Three additional Technical Leaders ETFs have since been made available (PIE, PIZ, and DWAS) and combined they now have over $1.5 billion in assets under management and licensing.

Whether it is large pension funds or individual investors, the appeal of Smart Beta is on the rise.

See www.powershares.com for more information.

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Looking Beyond the BRICS

March 27, 2013

Seeking Alpha weighs in on the merits of the PowerShares DWA Emerging Markets Technical Leaders ETF (PIE):

Most emerging market stock ETFs are heavy on the BRIC (Brazil, Russia, India, China). The problem? If you are hanging with the largest emerging economies in 2013, you’ve been losing money. Note: Think Vanguard Emerging Markets (VWO).

In contrast, PIE uses relative strength when conducting its quarterly rebalancing. With Thailand, Indonesia, and Mexico having had the best momentum in the most recent quarter, the continuation of that momentum has led to phenomenal gains in Q1 2013. Despite a tendency by some commentators to overplay the fundamental valuation card, individual investors should not underestimate the impact that technical analysis is having on successful portfolios.

pie2 Looking Beyond the BRICS

Source: Yahoo! Finance

Past performance is no guarantee of future returns.  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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More Big Emerging Markets Funds Close to New Investors

March 13, 2013

According to InvestmentNews there could be a lot of people looking for new ways to get exposure to emerging markets in the near future as three of the five largest actively managed emerging-markets funds have either closed to new investors or announced they will soon do so:

The $33 billion Oppenheimer Developing Markets Fund (ODMAX), the largest actively managed emerging-markets fund, announced last week it will close to new investors in April. Spokeswoman Kaitlyn Downing said the closing will help position the fund for continued long-term growth.

It joins the $10 billion Aberdeen Emerging Markets Fund (GEGAX) and the $8.3 billion Virtus Emerging Markets Opportunities Fund (HEMZX), the fourth and fifth largest such funds, in closing to new investors this year.

The $16 billion Lazard Emerging Markets Fund (LZEMX), the third largest actively managed emerging markets fund closed to new investors in 2010.

It might make sense for investors to consider using the PowerShares DWA Emerging Markets Technical Leaders ETF (PIE) as an alternative.  From a performance perspective, it stacks up nicely against the funds listed in the article.

pie More Big Emerging Markets Funds Close to New Investors

(Click to enlarge)

PIE is the second best performer since March 9, 2009 and is by far the best performer YTD.

Allocations to emerging markets are only expected to expand in the coming years:

The infatuation with the emerging markets, and their fast-growing economies, isn’t expected to slow down anytime soon. A majority of advisers — 51.4% — plan to increase their clients’ allocation to emerging-markets equity this year, according to the InvestmentNews 2013 Investment Outlook survey, in which 592 financial advisers participated.

Please see www.powershares.com for more information about PIE.  Past performance is no guarantee of future returns.

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PDP Gathers Steam

January 17, 2013

Paul Britt of IndexUniverse, after noting the strong inflows of the PowerShares DWA Technical Leaders ETF (PDP), had the following to say about its appeal:

In the end, PDP’s performance over more recent periods should bolster its appeal to those willing to take a bit more risk in search of more return.

This makes it a viable middle-ground alternative between purely passive super-low-cost ETFs like VTI and traditional actively managed mutual funds, which often come with higher costs.

Without a doubt, PDP is just one of many ETFs that offer an alternative to pure-vanilla U.S equity exposure.

But importantly, PDP stands out from many in this crowd, as its strong liquidity, hefty asset base and history of avoiding radical risk clearly suggest.

Britt also noted that turnover in the index last year was 96%.  As we discussed in our article Tax-Efficient Alpha, the combination of the tax-efficient ETF structure and our unique relative strength approach to indexing makes for a compelling investment solution.

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

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PowerShares Dorsey Wright ETFs Reach $1B

January 16, 2013

IndexUniverse highlights a significant milestone for the PowerShares Dorsey Wright Technical Leaders ETFs:

PowerShares, the No. 4 U.S. ETF firm by assets, today trumpeted the fact that the four ETFs it, along with technical-analysis guru Tom Dorsey, brought to market beginning almost six years ago together now have more than $1 billion in assets under management.

Almost three-quarters of those assets are in the oldest of the quintet, the $771 million PowerShares DWA Technical Leaders Portfolio (PDP), which outperformed the S&P 500 Index last year, PowerShares said today in a press release.

The four portfolios make use of the “point and figure” relative strength technical analysis Dorsey and his firm Dorsey Wright & Associates have championed for 25 years. The funds are part of the ETF world that is focused on so-called strategy indexing that amounts to an attempt to outperform—in a rules-based, quasi-active way—the broader market, as measured by capitalization-weighted indexes like the S&P.

The four funds, their launch dates, and their assets are as follows:

  • PowerShares DWA Technical Leaders Portfolio (PDP), March 2007, $771.0 million
  • PowerShares DWA Emerging Markets Technical Leaders Portfolio (PIE), December 2007, $275.9 million
  • PowerShares DWA Developed Markets Technical Leaders Portfolio (PIZ), December 2007, $132.3 million
  • PowerShares DWA SmallCap Technical Leader s Portfolio (DWAS), July 2012, $18.1 million

PDP, the granddaddy of the four funds, returned 17.87 percent last year compared with the S&P 500’s 16 percent, PowerShares said.

The Wheaton, Ill.-based fund company also said the fund has risen 14.93 percent in the past three years, compared with 10.86 percent for the S&P.

“It was a big deal when Dorsey Wright and Invesco PowerShares introduced the Technical Leaders ETFs beginning in 2007; it really gave investors a new way to implement relative strength strategies,” Tom Dorsey said in the press release.

“We believe that money managers will increasingly seek out well-designed alpha-seeking investments like the PowerShares DWA Technical Leaders ETFs that have demonstrated the potential to improve portfolio performance.”

We at Dorsey, Wright & Associates are very proud to have reached this significant milestone, and want to thank all of you, our clients, for your support of these robust relative strength-based ETF solutions.

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

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Factor-Based ETFs Growing in Popularity

January 2, 2013

Benzinga makes the case for factor-based ETFs and then uses the PowerShares DWA Developed Markets Index (PIZ) as an example:

A long-standing staple of the ETF business has been, and probably always will be to some extent, the passively managed index fund. An index fund, in most cases, is everything its name implies: A fund constructed using the securities of a specific index, be it the S&P 500, the MSCI Emerging Markets Index or another index.

Since most indexes are weighted by market capitalization, that means most index funds use cap-weighting methodology. Translation: The index’s largest holdings are usually those with the largest market value.

In terms of gathering assets, this approach has worked well for ETF sponsors, but as the industry has grown, savvy investors have sought out opportunities beyond traditional cap-weighting. Equal-weight ETFs have served as a popular avenue for investors looking to escape the cap-weighting rut.

Additionally, factor-based ETFs have increased in popularity. A simple definition of factor-based ETFs is that these funds are not quite actively managed per se, but they go far beyond the passive, cap-weighting routine by using growth, valuation and technical factors.

Obviously, investors will want to know if factor-based ETFs generate noteworthy returns relative to their cap-weighted rivals. In some cases, the answer is a resounding yes, so do not forget about these factor-based funds.

PowerShares DWA Developed Markets Technical Leaders Portfolio (NYSE: PIZ) PIZ is the developed markets equivalent of the popular PowerShares DWA Emerging Markets Technical Leaders Portfolio (NYSE: PIE).

PIZ excludes U.S.-based companies and its holdings (usually 100, but currently 104) can be domiciled in, but not limited to but not limited to Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom.

And like PIE, PIZ holds stocks that are displaying impressive relative strength traits. That does have a positive impact on returns. Year-to-date and over the past 12 and 36 months, PIZ’s underlying index, the Dorsey Wright Developed Markets Technical Leaders Index, has outpaced the MSCI EAFE Index and the MSCI EAFE Growth Index.

See www.powershares.com for more information about PIZ.

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PIE: Inflow Alert

December 27, 2012

Forbes points out that the PowerShares DWA Emerging Markets Technical Leaders Index (PIE) was the recipient of of some rather large flows over the past week:

Looking today at week-over-week shares outstanding changes among the universe of ETFs covered at ETF Channel, one standout is the DWA Emerging Markets Technical Leaders Portfolio (AMEX: PIE) where we have detected an approximate $60.2 million dollar inflow — that’s a 27.8% increase week over week in outstanding units (from 11,850,000 to 15,150,000). Among the largest underlying components of PIE, in trading today Tata Motors Ltd (NYSE: TTM) is up about 0.3%, Cosan Ltd (NYSE: CZZ) is up about 1.4%, and Companhia Brasileira de Distribuicao (NYSE: CBD) is up by about 1.1%.

A chart of PIE over the past 6 months is shown below:

pie yahoo PIE: Inflow Alert

Source: Yahoo! Finance

See www.powershares.com for more information.

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Pundit Scorecard

December 27, 2012

The WSJ’s article 2012 Was Good for Stocks, Bad for Stock Pundits reviews the track record for some well known pundits.  After detailing some of the blown 2012 calls by Jim Rogers and Jim Cramers, the article provides the following rather dreary summary:

Neither Mr. Rogers nor Mr. Cramer should feel singled out. The business of market punditry is fraught with potholes.

Of the 65 market “gurus” tracked during the last few years by CXO Advisory Group, the median accuracy for market calls is 47%. If that sounds low, or you wonder about the quality of the pundit, consider that the list includes such well-known names as Bill Fleckenstein (37%), Jeremy Grantham (48%), Bill Gross (46%) and Louis Navellier (60%).

The record speaks for itself. Most of the smartest guys in the room are usually about as reliable as a coin flip. After bombing in 2011 with a prediction that Treasury yields would rise, Mr. Gross, founder and co-chief investment officer of Pacific Investment Management Co., didn’t make any sweeping predictions for 2012 except to say he worried about Europe.

Something to keep in mind while reviewing forecasts for 2013.

crystal ball2 Pundit Scorecard

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Dorsey: ETF Revolution Just Starting

December 19, 2012

Want to know how important ETFs are to Dorsey Wright and to our entire industry?  Read this Q&A with IndexUniverse and Tom Dorsey.  Here’s the summary:

Tom Dorsey, president and founder of Dorsey Wright & Associates, can’t say enough positive things about ETFs. His business of point and figure technical analysis is now focused on ETFs, and their role in all that he does will only increase.

When IndexUniverse.com Managing Editor Olly Ludwig caught up with Dorsey on the sidelines of IndexUniverse’s Inside Trading ETFs conference last week at the New York Stock Exchange, Dorsey predicted that one of the four ETFs it created with Invesco PowerShares, the PowerShares DWA Technical Leaders Portfolio (NYSEArca: PDP), is likely to cross the $1 billion threshold sometime early next year.

That’s hardly a surprise to Dorsey, who considers the ETF the most important financial innovation in his 37-year career in the money management industry, and sees the development so far amounting to the first foot of a 26-mile marathon.

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