Countless investors have embraced ETFs in their portfolios thanks to the cost-efficient and easy-to-use nature of these financial instruments. Aside from serving as excellent core building blocks in long-term and retirement-themed portfolios, ETFs have also gained popularity among investors seeking out tactical exposure. One particular breed of products from industry veteran PowerShares has continued to slip under the radar for many, although a closer look under the hood reveals some attractive opportunities. Invesco PowerSharesoffers a suite of Technical Leaders ETFs which target a number of popular asset classes with a twist; these products employ a proprietarymethodologythat allows them to sort through thousands of securities and narrow down their basket of holdings to only the ones which satisfy certain criteria. The result is a shallower portfolio that is deemed to hold only the strongest components from each respective universe based on relative performance measures .

Relative Strength 101

So what's behind the Technical Leadersmethodology? Relativestrength. Each of the PowerShares offerings uses relative strength measures as the primary metric to consider securities for inclusion in each underlying portfolio. So what exactly is relative strength?

Simply put, relative strength measures the stocks's individual performance in relation to its peers. The index provider behind this lineup of ETFs, Dorsey Wright, states that relative strength improves upon the technical foundation of a basic trend following strategy; this is accomplished by relying on unbiased, unemotional, and objective data rather than biased forecasting and subjective research which isoftentimes at the discretion of the individual portfolio manager .

The indexes underlying the Technical Leaders ETFs select the securities from each respective universe that possess the most powerful relative strength characteristics in relation to the performance of the industry and sub-sectors; essentially, these portfolios are quantitatively-enhanced benchmarks. This sort of strategy may appeal to anyone who believes that rules-based technical analysis can serve to enhance bottom line returns over the long-haul .

Performance Check

The relative strength-focused lineup of PowerShares offerings has turned in impressive performance results, managing to outperform broad-based ETFs covering similar asset classes (returns as of 9/13/2012):

PowerShares DWA SmallCap Technical Leaders Portfolio (DWAS): This ETF includes about 200 companies companies that demonstrate relative strength in the U.S. small cap universe. Performance data is limited due to this ETF launching in July of this year.

Index 1 Month Return
DWA SmallCap Technical Leaders Portfolio 6.31%
iShares Russell 2000 Index Fund (IWM) 5.72%

PowerShares DWA Emerging Market Technical Leaders Portfolio (PIE): This ETF follows about 100 companies based in emerging markets, with a heavy interest in Asia and Latin America.

Index 3 Yr Return
DWA Emerging Market Technical Leaders Portfolio 9.21%
iShares MSCI Emerging Markets Index Fund (EEM) 4.39%

PowerShares DWA Technical Leaders Portfolio (PDP): This ETF only invests in the 100 US listed countries that have the strongest performance in their ownsub sectors.

Index 3 Yr Return
DWQ Technical Leaders Portfolio 17.23%
State Street SPDR S&P 500 (SPY) 13.52%

PowerShares DWA Developed Market Technical Leaders Portfolio (PIZ):This ETF follows about 100 companies based in developed markets outside of the US, with a tilt towards Europe, Australia, and Canada.

Index 3 Yr Return
DWA Developed Market Technical Leaders Portfolio 4.85%
iShares MSCI EAFE Index Fund (EFA) 2.53%

Follow me on Twitter@SBojinov

Disclosure: No positions at time of writing.

Related Articles
  1. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  2. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  3. Economics

    Long-Term Investing Impact of the Paris Attacks

    We share some insights on how the recent terrorist attacks in Paris could impact the economy and markets going forward.
  4. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  5. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  6. Mutual Funds & ETFs

    Buying Vanguard Mutual Funds Vs. ETFs

    Learn about the differences between Vanguard's mutual fund and ETF products, and discover which may be more appropriate for investors.
  7. Mutual Funds & ETFs

    ETFs Vs. Mutual Funds: Choosing For Your Retirement

    Learn about the difference between using mutual funds versus ETFs for retirement, including which investment strategies and goals are best served by each.
  8. Mutual Funds & ETFs

    How to Reinvest Dividends from ETFs

    Learn about reinvesting ETF dividends, including the benefits and drawbacks of dividend reinvestment plans (DRIPs) and manual reinvestment.
  9. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  10. Mutual Funds & ETFs

    Best 3 Vanguard Funds that Track the Top 500 Companies

    Discover the three Vanguard funds tracking the S&P 500 Index, and learn about the characteristics and historical statistics of these funds.
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>

You May Also Like

Trading Center