Under The Hood: PowerShares Adds Small Cap Technical Leaders ETF (DWAS, PDP, PIE, PIZ, FOS)
Michael Johnston: Invesco PowerShares this week announced the latest addition to its lineup of ETFs, rolling out a fund that will utilize relative strength indicators to determine individual holdings. The PowerShares DWA SmallCap Technical Leaders Portfolio (NYSEARCA:DWAS) will be the fourth PowerShares fund to utilize the DWA Technical Leaders strategy, seeking to replicate an index comprised of small cap U.S. stocks. Other products in the “Technical Leaders” suite include funds focused on the broad U.S. markets (NYSEARCA:PDP), emerging markets (NYSEARCA:PIE), and Developed Markets (NYSEARCA:PIZ).
Under The Hood
DWAS will seek to replicate the Dorsey Wright SmallCap Technical Leaders Index, which includes about 200 small cap U.S. companies. The primary metric considered for inclusion in the index will be relative strength, which generally refers to a stock’s performance compared to the rest of the market. Several studies have shown that relative strength can be a powerful indicator of future performance, and the lineup of existing relative strength ETFs from PowerShares has done quite well over the past few years (more on this below). “We are pleased to once again partner with Dorsey, Wright & Associates for the PowerShares DWA SmallCap Technical Leaders Portfolio (DWAS), providing investors with a full suite of Technical Leaders ETFs based on the firm’s respected research.” said Ben Fulton, Invesco PowerShares managing director of global ETFs. “The DWA Technical Leaders strategy, based on relative strength, is widely followed by advisors and professional asset managers.”
The DWAS portfolio consists of 200 individual holdings, and is relatively balanced with only about 15% of assets in the top ten positions. The largest stocks include Jazz Pharmaceuticals (1.7%), Pier 1 Imports (1.6%), and Clean Harbors Inc. (1.6%). JAZZ has gained about 26% over the past year, while PIR has added about 37% and CLH is up about 5%.
DWAS will charge an annual expense ratio of 0.60%, which falls within the range of the Small Cap Blend ETFdb Category. Thecheapest ETF in that category, the Focus Morningstar Small Cap Index ETF (NYSEARCA:FOS), charges just 12 basis points.
Relative Strength ETFs
PowerShares already offers a trio of relative strength ETFs that utilize similar methodologies. Each of these products has turned in impressive results over the past three years, handily outperforming broad-based indexes covering similar asset classes (tables below show performance data as of 6/30/2012).
- DWA Developed Markets Technical Leaders Portfolio (NYSEARCA:PIZ): This ETF replicates an index that consists of about 100 companies with powerful relative strength characteristics from developed markets outside the U.S. The underlying index has outperformed the MSCI EAFE index to which popular ETFs such as VEA and EFA are linked.
|Index||3 Yr Return|
|DWA Developed Markets Technical Leaders Index||10.21%|
|MSCI EAFE Index||5.96%|
- DWA Emerging Markets Technical Leaders Portfolio (NYSEARCA:PIE): This ETF seeks to replicate an index comprised of stocks with powerful relative strength characteristics from emerging markets. PIE’s index has beaten the MSCI Emerging Markets Index over the past three years.
|Index||3 Yr Return|
|DWA Emerging Markets Technical Leaders Index||20.55%|
|MSCI Emerging Markets Index||9.77%|
- DWA Technical Leaders Portfolio (NYSEARCA:PDP): This ETF covers the U.S. market, focusing on domestic stocks with strong relative strength characteristics.
|Index||3 Yr Return|
|Dorsey Wright Technical Leaders Index||22.12%|
|S&P 500 Index||16.40%|
Written By Michael Johnston From ETF Database Disclosure: Long FOS.
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