“Intelligent” or “enhanced” index exchange traded funds that implement active investment styles instead of a market-cap index have become a popular draw, even outperforming traditional indices.
For instance, the Invesco PowerShares and Dorsey Wright ETFs built around the Dorsey Wright & Associates concept of relative strength – a momentum investing technique that singles out the strongest performers compared to the overall market – has been outperforming their broader peers.
We have previously looked at the outperformance of the PowerShares DWA Emerging Markets Technical Leaders Portfolio (NYSEArca: PIE) compared to the larger emerging market ETFs, like the iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM), even as the emerging markets as a whole lags behind the U.S. markets. [Outperforming ETF for Emerging Markets Hits Rough Patch]
Additionally, the line of DWA technical leaders ETFs includes a developed market and small-cap offering that has also outperformed traditional beta indexing, cap-weighted ETFs.
The PowerShares DWA Developed Markets Technical Leaders Portfolio (NYSEArca: PIZ), which follows 100 company stocks from developed market countries that show strong relative strength characteristics, has outperformed the MSCI EAFE index so far this year. PIZ gained 9.6% year-to-date, compared to the MSCI EAFE index’s 8.3% increase.
PIZ’s country allocations include U.K. 27.4%, Singapore 10.4%, Germany 10.0%, Australia 8.0%, Switzerland 7.1%, Japan 7.1%, France 6.0%, Canada 4.5%, Sweden 4.4% and Hong Kong 3.9%. In comparison, the top countries within the MSCI EAFE include U.K. 22.1%, Japan 21.4%, France 9.7%, Switzerland 9.0% and Germany 8.7%.