An exchange traded fund that tracks an “enhanced” indexing methodology has helped emerging market investors realize some returns this year, but the strategy is starting to lag its bigger peers.
The PowerShares DWA Emerging Markets Technical Leaders Portfolio (NYSEArca: PIE) has gained 2.6% year-to-date, outperforming broad emerging market ETFs like the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM), which have declined 9.5% and 8.8% year-to-date, respectively. [PIE: An Emerging Markets ETF Juggernaut]
However, over the past month, PIE has dipped 10.9%, whereas EEM declined 7.9% and VWO dropped 8.5%. PIE is also experiencing heavy selling, with volumes hitting 1.1 million shares Tuesday, compared to an average volume of around 200,000 shares.
Looking at the ETFs’ 52 week range, PIE is now 14.1% off its high while VWO is 12.8% off its 52-week high and EEM is 13.1% off its 52-week high.
PIE tracks the Dorsey Wright Emerging Markets Technical Leaders Index, which utilizes technical factors, including relative strength, to select 100 emerging market stocks that show the best relative performance over the past six to 12 months. In comparison, VWO tries to follow the FTSE emerging markets index and EEM tracks the MSCI emerging markets index.
Consequently, PIE’s country allocations diverged from the broader index ETFs. Specifically, the PowerShares ETF has large allocations to countries like Thailand 13.9%, Mexico 11.9% and Turkey 8.7%, which have outperformed earlier this year but have now turned.
Turkish stocks are now one of the worst performing emerging markets after protests in Istanbul escalated. [Turkey ETF Down Over 20% in a Month on Protest Fears]