Investing based on momentum and relative strength has been a
successful strategy the last few years as the market hit new
all-time highs several times.
A recent pullback in the stock market due to the government
shutdown has brought the ETFs that following the concentrated
strategy back to support levels. Keep in mind that even momentum
ETFs will not move higher every day and that pullbacks are part
of a long-term bull market.
PowerShares DWA Momentum Portfolio ETF (NYSE:
The ETF is up 21 percent in 2013 and is trading one percent
below an all-time high. The ETF is based on the Dorsey Wright
Technical Leaders Index and is composed of approximately 100
mid-cap and large-cap U.S. stocks. The index is based on a
proprietary methodology that takes into stock account performance
versus a benchmark as well as the relative performance of
industry and sub-sectors. The universe begins with 3,000 of the
largest U.S. stocks.
Since 2007, the index has outperformed the S&P 500 and
trades more inline with the S&P 500 Growth Index. The top
holdings currently include tech darlings Priceline.com (NASDAQ:
) and Apple (NASDAQ:
iShares MSCI USA Momentum Factor ETF (NYSE:
Launched in April of this year, MTUM has lagged PDP since its
inception most likely due to a difference in how stocks are
chosen for inclusion. The ETF is currently made up of 123
large-cap and mid-cap stocks based in the U.S. The portfolio is
reallocated every quarter based on a formula that attempts to
identify stock exhibiting relatively higher momentum
The ETF is heavily weighted in the health care and consumer
staples sectors, which are not often viewed as momentum plays.
The top two holdings are Johnson & Johnson (NYSE:
) and Gilead Sciences (NASDAQ:
PowerShares DWA Emerging Markets Momentum Portfolio ETF (NYSE:
Similar to PDP, this ETF tracks a Dorsey Wright Index, except
the difference is that it only concentrates on stocks based in
emerging market countries. Since the beginning of 2008 the ETF
has lagged the S&P 500 as well as the MSCI Emerging Markets
Index. This is due to the emerging markets not enjoying the same
bull market as the U.S. stocks.
The ETF is diversified over several sectors and is most
heavily weighted in Taiwan and China. Year-to-date the ETF is up
less than 1 percent, but has been able to rally 15 percent from
the late August low as the emerging markets are beginning to
attract new buyers.
The emerging markets momentum ETF is a perfect example of how
this type of strategy tends to underperform in a non-bull market.
That being said, the U.S. appears to be in the middle of a
long-term bull market that should continue to see the momentum
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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