Invesco PowerShares this week announced the latest addition to its lineup of ETFs, rolling out a fund that will utilize relative strength indicators to determine individual holdings.The PowerShares DWA SmallCap Technical Leaders Portfolio (DWAS) will be the fourth PowerShares fund to utilize the DWA Technical Leaders strategy, seeking to replicate an index comprised of small cap U.S. stocks. Other products in the Technical Leaders suite include funds focused on the broad U.S. markets (PDP), emerging markets (PIE), and Developed Markets (PIZ).

Under The Hood

DWAS will seek to replicate theDorsey Wright SmallCap Technical Leaders Index, which includes about 200 small cap U.S. companies. The primary metric considered for inclusion in the index will be relative strength, which generally refers to a stock's performance compared to the rest of the market. Several studies have shown that relative strength can be a powerful indicator of future performance, and the lineup of existing relative strength ETFs from PowerShares has done quite well over the past few years (more on this below)."We are pleased to once again partner with Dorsey, Wright & Associates for the PowerShares DWA SmallCap Technical Leaders Portfolio (DWAS), providing investors with a full suite of Technical Leaders ETFs based on the firm's respected research." said Ben Fulton,Invesco PowerSharesmanaging director of global ETFs. "The DWA Technical Leaders strategy, based on relative strength, is widely followed by advisors and professional asset managers."

The DWAS portfolio consists of 200 individual holdings, and is relatively balanced with only about 15% of assets in the top ten positions. The largest stocks include Jazz Pharmaceuticals (1.7%), Pier 1 Imports (1.6%), and Clean Harbors Inc. (1.6%). JAZZ has gained about 26% over the past year, while PIR has added about 37% and CLH is up about 5%.

DWAS will charge an annual expense ratio of 0.60%, which falls within the range of the Small Cap Blend ETFdb Category. The cheapest ETF in that category, the Focus Morningstar Small Cap Index ETF (FOS), charges just 12 basis points.

Relative Strength ETFs

PowerShares already offers a trio of relative strength ETFs that utilize similar methodologies. Each of these products has turned in impressive results over the past three years, handily outperforming broad-based indexes covering similar asset classes (tables below show performance data as of 6/30/2012).

  • DWA Developed Markets Technical Leaders Portfolio (PIZ): This ETF replicates an index that consists of about 100 companies with powerful relative strength characteristics from developed markets outside the U.S. The underlying index has outperformed the MSCI EAFE index to which popular ETFs such as VEA and EFA are linked.
Index 3 Yr Return
DWA Developed Markets Technical Leaders Index 10.21%
MSCI EAFE Index 5.96%
  • DWA Emerging Markets Technical Leaders Portfolio (PIE):This ETF seeks to replicate an index comprised of stocks with powerful relative strength characteristics from emerging markets. PIE's index has beaten the MSCI Emerging Markets Index over the past three years.
Index 3 Yr Return
DWA Emerging Markets Technical Leaders Index 20.55%
MSCI Emerging Markets Index 9.77%
  • DWA Technical Leaders Portfolio (PDP): This ETF covers the U.S. market, focusing on domestic stocks with strong relative strength characteristics.
Index 3 Yr Return
Dorsey Wright Technical Leaders Index 22.12%
S&P 500 Index 16.40%

Disclosure: Long FOS.

Related Articles
  1. Mutual Funds & ETFs

    Top 3 Switzerland ETFs

    Explore detailed analysis and information of the top three Swiss exchange-traded funds that offer exposure to the Swiss equities market.
  2. Mutual Funds & ETFs

    7 Best ETF Trading Strategies for Beginners

    Exchange-traded funds are ideal instruments for beginning traders and investors. Learn the seven best strategies for trading ETFs.
  3. Mutual Funds & ETFs

    ETF Analysis: SPDR Dow Jones International RelEst

    Learn how the SPDR Dow Jones International Real Estate exchange-traded fund (ETF) is managed and for whom the ETF is most appropriate.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares JPMorgan USD Emerg Markets Bond

    Learn about the iShares JPMorgan USD Emerging Markets Bond fund, which invests in bonds of sovereign and quasi-sovereign entities from emerging markets.
  5. Active Trading Fundamentals

    How Hedge Funds Front-Run Index Funds to Profit

    Understand what front running is, and learn how hedge funds use this investing strategy to profit from the anticipated stock buys of index funds.
  6. Mutual Funds & ETFs

    ETN Analysis: Rogers Intl Commodity Energy Total Return

    Learn more about the Rogers International Commodity Total Return, which is an exchange-traded note that tracks a broad index of commodity futures.
  7. Mutual Funds & ETFs

    ETF Analysis: Schwab US Large-Cap

    Discover how the Schwab U.S. Large-Cap exchange-traded fund is managed, the index it tracks and the investors for which it is most appropriate.
  8. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  9. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Nasdaq Biotech

    Obtain information about an ETF offerings that provides leveraged exposure to the biotechnology industry, the ProShares UltraPro Nasdaq Biotech Fund.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Europe Financials

    Learn about the iShares MSCI Europe Financials fund, which invests in numerous European financial industries, such as banks, insurance and real estate.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  4. Fractal Markets Hypothesis (FMH)

    An alternative investment theory to Efficient Market Hypothesis ...
  5. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  6. Sucker Yield

    When an investor has essentially risked all of his capital for ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!