When it comes to diversified developed markets ETFs that do not feature exposure to the U.S., the PowerShares DWA Developed Markets Technical Leaders Portfolio (NYSEArca: PIZ) may not be the first ETF investors think of. However, the ETF’s recent track record indicates it merits more consideration than it may be getting.
That is not to say PIZ is small. With $429.3 million in assets under management, PIZ is not small. It is merely small compared to the iShares MSCI EAFE ETF (NYSEArca: EFA), one of its primary rivals. Still, PIZ’s sort of diminutive stature belies its big returns. In September, the fund gained nearly 10% and it was among the 10 best non-leveraged ETFs with average daily volume of at least 134,000 shares during the third quarter, according to Investor’s Business Daily.
PIZ is part of the suite of four PowerShares ETFs based on a Dorsey Wright Technical Leaders index. The simple way of explaining PIZ is that is the developed markets equivalent of the well known PowerShares DWA Emerging Markets Technical Leaders Portfolio (NYSEArca: PIE). Though PIE is smaller than PIZ, the former has also, at various times, outperformed its larger rivals. [Outperforming Emerging Markets ETF Hits a Rough Patch]
PIZ embraces the concept of relative strength – a momentum investing technique that singles out the strongest performers compared to the overall market. The country universe the fund can draw from is as follows: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. [Enhanced ETFs Beating Their Benchmarks]
That is comparable to what other major developed market ETFs allocate to, indicating that it is the relative strength methodology that separates PIZ from its rivals. September is not the first time the ETF has topped its larger counterparts. Year-to-date, the fund is up nearly 24%. Over the past three years, the DWA Developed Markets Technical Leaders Index has outperformed the MSCI EAFE Index by 190 basis points, according to PowerShares data.
At the country level, the U.K accounts for over 29% of PIZ’s weight, but the ETF is well-allocated to countries with AAA sovereign credit ratings. Seven in fact, a group comprised of Germany, Switzerland, Hong Kong, Singapore, Sweden, Denmark and Canada. However, the “secret sauce” for PIZ may be its almost 51% weight to mid-caps, further proof that smart beta strategies can in fact work for investors under the right circumstances.
PowerShares DWA Developed Markets Technical Leaders Portfolio
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of EFA.