“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%.
Sector allocations include consumer discretionary 27.9%, consumer staples 5.5%, energy 8.1%, financials 15.9%, health care 10.9%, industrials 15.5%, information technology 6.5%, materials 7.8% and telecom services 2.2%. The MSCI EAFE allocations include a heavier tilt toward financials 25.0%, followed by industrials 12.5%, consumer staples 11.8%, consumer discretionary 11.5% and health care 10.3%.
The PowerShares DWA SmallCap Technical Leaders Portfolio (NYSEArca: DWAS) tracks 200 companies selected from the 2,000 smallest U.S. companies that demonstrate relative strength. The fund has gained 27.6% year-to-date, whereas the Russell 2000 has increased 18.4%.
DWAS sector allocations include consumer discretionary 25.2%, consumer staples 2.2%, energy 4.0%, financials 15.8%, health care 17.4%, industrials 15.1%, information technology 11.9%, materials 7.8% and telecom services 0.6%. In comparison, the top Russell 2000 sectors include technology 15.8%, industrials 16.9%, consumer discretionary 15.1%, financials 13.7% and health care 11.4%.
For more information on ETF indexing, visit our indexing category.
Max Chen contributed to this article.