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]
While the 0.8% annual expense ratio charged by PIZ is higher than what is found on cap-weighted EAFE ETFs, the higher fees are rendered moot because PIZ’s index has outperformed the comparable EAFE benchmark by nearly 1,000 basis points over the past year, according to PowerShares data.
PIZ also offers investors an avenue to play seasonal strength in consumer discretionary stocks because that is by far the ETF’s largest sector weight at 31%. Industrials, another strong seasonal play at this time of year, are next at 19%. [Time to Warm to Discretionary ETFs]
PIZ has $527.5 million in assets under management, $362.6 million of which has come into the fund this year, making it the sixth-best PowerShares ETF in terms of 2013 inflows.
PowerShares DWA Developed Markets Momentum Portfolio