Posted on 01/13/2012
Dorsey, Wright & Associates is the index provider for three indexes known as the Technical Leaders Indexes which are replicated in an Exchanged Traded Fund available from PowerShares, each providing a way of accessing strong relative strength equities securities from both the domestic and international equity arena. Many of you use these products in some capacity, and today we wanted to update you on some of the recent changes within these tactically driven products as they are rebalanced on a quarterly basis. For those who are not familiar with the products, below are the descriptions for these three technical leader ETFs:
PowerShares DWA Technical Leaders Index [PDP] Update:
This ETF provides exposure to 100 "high relative strength" US stocks out of a universe of about 1,500 U.S. common stocks. Traditional Indexes are commonly Capitalization-weighted, Price-weighed, or perhaps Equal-Weighted. PDP is instead strength-weighted, which allows the fund to take on a sector complexion very different than that of its benchmark (S&P 500) at times. The underlying index is re-balanced quarterly to reflect relative strength changes in the market and the ETF remains 100% invested at all times.
Developed Markets Technical Leaders (PIZ) Update:
This ETF gives investors exposure to the 100 "high relative strength" issues from Non-US developed economies. Traditional "Developed Market" ETFs are weighted based upon market cap or the size of the Economy, while our portfolio is guided by trends in relative strength instead. The ETF is re-balanced quarterly as the relative strength screen is re-applied to potential additions and deletions. The ETF remains 100% invested at all times. (Launched December 2007) (more info)
While the PIZ continues to overweight the United Kingdom, the weighting decreased a bit this quarter to 21.12%, down roughly -0.48% from the previous quarter. Canada and Australia, along with the UK, are the only countries that have weights of 10% or greater within the PIZ. During the previous re-constitution, Germany took the biggest reduction in weighting, but with the most recent update of the index, its weighting increased the most on a percentage basis, moving up from 2.59% to 6.85%. Australia's weighting added 2.77%, adding additional exposure to the Asia-Pacific realm. Japan's weighting decreased the most during the recent change, coming down from 12.63% to 7.51%. Japan remains notably underweighted in the PIZ relative to the 21% exposure in the MSCI EAFE Index [EFA]. One of the other notable differences between the two indices would be the different weightings in Canada, which has a 14% exposure in the PIZ and 0% exposure in EFA.
Emerging Markets Technical Leaders (PIE) Update:
This ETF offers tactical exposure to the emerging market space, investing in 100 "high relative strength" stocks from emerging market economies. Similar to PIZ, the components and weightings are dictated by trends in relative strength rather than the size of a specific economy. The ETF is re-balanced quarterly as a new relative strength screening process is applied, and the ETF remains 100% invested at all times. (Launched December 2007) (more info)
For the PIE's quarterly re-constitution, the largest country weighting change this quarter was 2.32%, which was the increase given to Mexico, which makes this country the third largest country weighting in the ETF, behind Korea and Malaysia (based of 12/31/11 re-constitution). The only other country to gain more than 1% from the previous quarter was Korea as it gained 1.20%, moving up to a weighting of 16.9% in the PIE. The most notable decrease in weighting took place in Turkey, as its weighting fell from 2.59% to 0.5% during the most recent re-constitution. When compared to the iShares Emerging Markets ETF [EEM], the major differences lie in the "BRIC" country weightings. While Brazil, Russia, India, and China account for roughly over one-third of the EEM, these respective countries, excluding Russia, only makeup only 13% of the PIE.
The weighting differences between the PIE and the EEM is a reminder of how different a portfolio can look when weighted by means of relative strength instead of capitalization measures. In addition to the notable differences exposure to the "BRIC" countries, there are other notable differences in these two indices, and most notably it is the overweighting towards Asia Pacific region within the PIE. Malaysia, Thailand, and Indonesia alone still account for 45% of the PIE while these three countries account for less than 8% of the weighting in the EEM.