Like the other PowerShares ETFs that track Dorsey Wright’s relative strength-based indices, DWAQ is passively managed. However, the relative strength methodology lends itself to increased flexibility in weighting and component selection compared to traditional cap-weighted ETFs.
Assuming current trends hold and that predictions of a biotech bubble prove inaccurate, it is easy to see what sector will be the primary driver of DWAQ’s potential, future upside: Health care. By swapping indices, DWAQ’s weight to health care stocks has more than doubled while the ETF’s tech sector exposure has been slashed to 20% from 46.4% at the end of last year.
DWAQ is now overweight health care and consumer discretionary stocks relative to QQQ. DWAQ’s combined weights to those sectors is 55.6% compared to 36.3% at the end of 2013. QQQ’s current combined allocation to those sectors is 35.3%, according to PowerShares data.
Despite higher exposure to small-cap biotech names, some of which skeptics assert are richly valued, DWAQ does not appear frothy on valuation. The ETF’s P/E and price-to-book ratios are below those found on QQQ.
PowerShares DWA NASDAQ Momentum Portfolio Sector Weights