Back in the go-go days for emerging markets stocks and exchange traded funds, the PowerShares DWA Emerging Markets Momentum Portfolio (NYSEArca: PIE) got plenty of attention.
PIE’s cornerstone strategy, which is rooted in relative strength, made the ETF a cult favorite. With the caveat of course being when emerging markets equities were in vogue. Well, emerging markets ETFs have bounced back since early February, but this time around, it feels like PIE is not receiving the adulation it has in the past.
Perhaps that is the result of “momentum” being in PIE’s name. That is not an advantage at a time when U.S. momentum stocks have been cast aside. However, with PIE investors do not get an ETF littered with Internet, social media and other out-of-favor momentum fare. [Momentum ETF Searches for new Highs]
What is crucial to remember with PIE is that the Dorsey Wright Emerging Markets Technical Leaders Index, PIE’s underlying index, is built on price momentum, which can apply to a plethora of countries and stocks. As PIE highlights, there is a big difference between positive price momentum, which is not confined by sector, and momentum as it applies to biotech or Internet stocks. [Some Enhanced ETFs Beat Their Benchmarks]
Currently, PIE has a decidedly conservative tilt. South Korea and Taiwan, two of the lowest beta emerging markets, combine for over 36% of PIE’s weight. That has the ETF looking a bit like the PowerShares S&P Emerging Markets Low Volatility Portfolio (NYSEArca: EELV), which clearly is designed to be a conservative avenue to emerging markets exposure.
The exposure to South Korea and Taiwan has proven efficacious at a time when those markets are performing well. [South Korea ETFs Could Surge]
While PIE is not an actively managed ETF, its underlying index offers more flexibility in terms of quarterly country changes than investors are accustomed to seeing with an ETF such as the iShares MSCI Emerging Markets ETF (NYSEArca: EEM).
That also means staying abreast of PIE’s country allocations is a worthy endeavor. Translation: What is not in the ETF is often just as important as what is. PIE is underweight China compared to the MSCI Emerging Markets Index by nearly 700 points and the ETF currently features no exposure to Russian equities.
Although its weight these countries are not large on an individual basis, PIE does allocate a combined 24% of its weight to Thailand, Indonesia, the Philippines and Malaysia. On an individual basis and in aggregate, that is an overweight position to those countries compared to EEM. And that is a plus at a time when the single-country ETFs tracking those nations, Indonesia and the Philippines in particular, are surging. [Philippines ETF in Rally Mode Again]
PowerShares DWA Emerging Markets Momentum Portfolio
Tom Lydon’s clients own shares of EEM.