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 (NYSEArca: 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 (NYSEArca: PIE) and the PowerShares DWA SmallCap Momentum Portfolio (NYSEArca: 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.
PIZ “has tightened up nicely over the past few weeks, holding support of the 10-week moving average,” writes Deron Wagner of Morpheus Trading Group. “The daily chart shows the price action breaking above the short-term downtrend line last Friday (Nov. 15), and pulling back to that line this week, which we call testing the backside of a downtrend line.”
Wagner is forecasting a breakout for PIZ at the ETF’s all-time high around $26.90 set in 2008.
That breakout is possible, particularly if Japanese and European equities keep up their bullish ways. The Dorsey Wright Developed Markets Technical Leaders Index, PIZ’s underlying index, competes with MSCI EAFE Index, meaning PIZ allocates over 47% of its combined weight to the U.K., Japan and Switzerland, three of the better-performing ex-U.S. developed markets this year. [Chart of the Day: Developed Markets ETFs]