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. Budgeting

    The Honest Company Bundles Review: Are They Worth It?

    Learn more about The Honest Company and its bundle subscription services, which deliver discounted diapers, formula and other baby products to your doorstep.
  2. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  3. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  4. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
  5. Products and Investments

    The One Thing Your Portfolio Must Always Have

    Portfolio diversification is essential in any situation, but especially so as the market finally returns to fundamentals.
  6. Investing News

    Bank Stocks: Time to Buy or Avoid? (WFC, JPM, C)

    Bank stocks have been pounded. Is this the right time to buy or should they be avoided?
  7. Budgeting

    Blue Apron Review: Is It Worth It?

    Read about one of the top meal-kit delivery services in the United States, and learn more about what it offers and how much it costs.
  8. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  9. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  10. Chart Advisor

    How Are You Trading The Breakdown In Growth Stocks? (VOOG, IWF)

    Based on the charts of these two ETFs, bearish traders will start turning their attention to growth stocks.
RELATED FAQS
  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 >>
COMPANIES IN THIS ARTICLE
Trading Center