An ETF Two-Step for Emerging Markets Seasonality
November 19th, 2013 at 9:00am by Todd Shriber
A combination of two exchange traded funds can be quite useful for investors looking to exploit the market’s seasonal trends.
When it comes to U.S. stocks, data show the PowerShares DWA Momentum Portfolio (NYSEArca: PDP) and the PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV) work well alone or as a pair for capturing seasonal trends.
As was reported earlier this month, Dorsey Wright & Associates back-tested the S&P 500 Low Volatility Index, SPLV’s index, for the 1997 through 2011 time frame, noting that it returned almost 87% in the November 1-April 30 period, also known as the best six months for stocks. [A Two-ETF Strategy for the Best Six Months]
On the other hand, PDP’s underlying index, the Dorsey Wright Technical Leaders Index jumped a staggering 465.5% in the best six-period from 1997 through 2011, according to Dorsey Wright data.
A similar approach can be taken to emerging markets with the PowerShares S&P Emerging Markets Low Volatility Portfolio (NYSEArca: EELV) and the PowerShares DWA Emerging Markets Momentum Portfolio (NYSEArca: PIE).
In this strategy, EELV replaces SPLV as the play for the worst six-month period for stocks (May-October) and PIE replaces PDP as the November-April play. “D uring the seasonally strong six months in the market, the Technical Leaders ETF has tended to provide greater returns than the performance of the Low Volatility ETF. This is consistent with what we have found within the US market study,” according to Dorsey Wright.