A growing number of exchange traded funds launched over the past year are using the ETF of ETFs approach, meaning these funds are comprised of other ETFs.
The Arrow DWA Tactical ETF (NasdaqGM: DWAT) is one such fund. The Arrow DWA Tactical ETF is Arrow’s first actively managed ETF and second ETF after the popular Arrow Dow Jones Global Yield ETF (NYSEArca: GYLD).
Importantly, DWAT’s ETF of ETF approach is working for investors. The ETF has slightly outpaced the S&P 500 this year and touched a new high last Friday. The actively managed DWAT, which has an annual expense ratio of 1.52%, “seeks to achieve its investment objective by implementing a proprietary Relative Strength (RS) Global Macro model managed by Dorsey Wright & Associates (DWA),” according to ArrowShares. DWAT came to market last October. [ArrowShares Adds a Second ETF]
The combination of active management and a methodology rooted in relative strength allows DWAT to build a diversified portfolio of well-known, and more importantly, strong performing ETFs. For example, the Health Care Select Sector SPDR (NYSEArca: XLV), the largest health care ETF, is currently DWAT’s largest holding at a weight of nearly 13.7%.
With a combined 19.7% weight to the iShares Cohen & Steers Realty Majors (NYSEArca: ICF) and the SPDR Dow Jones REIT ETF (NYSEArca: RWR), DWAT offers ample leverage to a low interest rate environment. However, that does not imply DWAT is vulnerable to rising interest rates.