ALPS Introduces a Sector Momentum ETF
A number of smart products are coming into being in the ETF industry lately. Issuers are trying to offer the best possible strategies to win in the current investing environment. With the U.S. economy gaining traction, the focus has shifted to growth and momentum investing considerably. Probably, this is why ALPS has launched a product – ALPS Dorsey Wright Sector Momentum ETF SWIN – based on the sector momentum technique (read: 6 Successful ETF Launches of 2016).
Inside SWIN
The fund looks to track the performance of the Dorsey Wright US Sector Momentum Index. The index shortlists stocks first at the macro level using the GICS sector index returns (excluding Real Estate) to filter sectors with the highest momentum (read: Beat the Market with Momentum ETFs).
After pickingthree sectors with the highest momentum, it puts about 20% weight on a sector. Each sector is likely to have around 10 stocks with about 2% weight each. Then it selects four highest momentum sectors, applying about 10% weight to each and around 2% weight to the five stocks selected from each sector. The index rules out the lowest momentum sectors.
As of January 6, 2017, the index constituent showed that information technology (20.2%), industrials (20.01%) and consumer cyclical (19.94%) had 10 stocks each while health care (10%), financials (9.97%), energy (9.95%) and basic materials (9.91%) had five each.
As of January 13, 2017, the fund holds 52 stocks in total. None of the stocks account for more than 2.35% of the fund. TESARO Inc., The Ultimate Software Group and Amazon.com are the top three stocks of the fund. The fund charges 40 bps in fees.
How Does It Fit in a Portfolio?
The fund is an intriguing option for investors eyeing momentum plays on the high-flying market segments. Momentum investing is a fascinating idea for those seeking higher returns in a short spell. Momentum investing looks to reflect profits from buying stocks which are sizzling on the market.
This is especially true for the U.S. market as the sentiments are pretty bullish at the current level, courtesy of Trump-induced optimism. His promises for tax cuts, fiscal boost, easing regulations and job creation may do wonders for some U.S. equity sectors (read: 4 Sector ETFs & Stocks to Profit from Q4 Earnings Season).
Moreover, the Fed is on a policy tightening mode. It enacted a rate hike in December 2016 and intends to raise rates thrice this year. This will help sectors like financials gain significantly while a few are likely to lose. In the view of such factors, momentum plays with a focus on sector investing could be a great idea (read: Do You Need a High Momentum ETF?).
ETF Competition
This is not the first time that investors get access to momentum ETFs. The Dorsey Wright technique that ALPS is using now has already been used by First Trust. Notably, First Trust Dorsey Wright Focus 5 ETF FV gives exposure to five First Trust sectors and industry-based ETFs that Dorsey, Wright & Associates (DWA) finds the best to beat the other ETFs in the selection universe.
However, the difference is that FV is an ETF of ETFs while SWIN is made up of stocks. Meanwhile, momentum ETFs like iShares MSCI USA Momentum Factor ETF (MTUM), SPDR Russell 1000 Momentum ETF ONEO and PowerShares DWA Tactical Sector Rotation ETF DWTR may pose competition to SWIN.
In fact, DWTR is also based on the Dorsey Wright strategy and gives exposure to the strongest relative strength sectors in the U.S. through nine PowerShares DWA sector Momentum ETFs. DWTR is also a fund of funds.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
FT-DORSEY WFFF (FV): ETF Research Reports
ISHRS-MSCI US M (MTUM): ETF Research Reports
PWRSH-DWA TSRP (DWTR): ETF Research Reports
SPDR-R1000 MF (ONEO): ETF Research Reports
ALPS-DW SEC MM (SWIN): ETF Research Reports
To read this article on Zacks.com click here.
Zacks Investment Research
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
