Recent data (and the Federal Reserve’s tapering announcement) indicate the U.S. economy is improving and the current economic expansion is maturing.
Assuming that the recovery is moving into late cycle stages, investors may want to consider momentum-based strategies.
“When positioning portfolios for mid to late cycle economic activity, the momentum factor historically had a stronger track record of performance than either small cap or value in generating return,” according to PowerShares, the fourth-largest U.S. ETF sponsor. “It appears that the maturity of the economic cycle may benefit companies which are showing price strength and are able to leverage economic conditions present in a mature economic expansion.”
Investors have an expanding array of momentum-based ETFs from which to choose, but one of the group’s more seasoned names is the Powershares DWA Momentum Portfolio (NYSEArca: PDP). Like several other PowerShares ETFs, PDP is based on momentum strategies curated by Dorsey Wright & Associates and the ETF tracks the Dorsey Wright Technical Leaders Index. [Eight Overlooked Smart Beta ETFs]
There additional reasons to consider an ETF such as PDP in the new year.
“The current economic landscape is one where the economic recovery is mature and there is a threat of higher interest rates due to the expected end of the Federal Reserve’s program of purchasing long term Treasuries,” notes PowerShares.
PowerShares also notes the momentum factor has a legacy of out-performance during rise rate environments. Looking at PDP’s secotr lineup, it is easy to see why the ETF could be an ideal rising rates play. PDP allocates a combined 46% of its weight to the consumer discretionary and industrial sectors, two of the best-performing sectors when rates rise. [Cyclical Sector ETFs Thrive When Rates Rise]