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Some Enhanced ETFs Beating Their Benchmarks


“Intelligent” or “enhanced” index exchange traded funds that implement active investment styles instead of a market-cap index have become a popular draw, even outperforming traditional indices.

For instance, the Invesco PowerShares and Dorsey Wright ETFs built around the Dorsey Wright & Associates concept of relative strength – a momentum investing technique that singles out the strongest performers compared to the overall market – has been outperforming their broader peers.

We have previously looked at the outperformance of the PowerShares DWA Emerging Markets Technical Leaders Portfolio (PIE) compared to the larger emerging market ETFs, like the iShares MSCI Emerging Markets Index Fund (EEM) , even as the emerging markets as a whole lags behind the U.S. markets. [Outperforming ETF for Emerging Markets Hits Rough Patch]

Additionally, the line of DWA technical leaders ETFs includes a developed market and small-cap offering that has also outperformed traditional beta indexing, cap-weighted ETFs.

The PowerShares DWA Developed Markets Technical Leaders Portfolio (PIZ) , which follows 100 company stocks from developed market countries that show strong relative strength characteristics, has outperformed the MSCI EAFE index so far this year. PIZ gained 9.6% year-to-date, compared to the MSCI EAFE index’s 8.3% increase.

PIZ’s country allocations include U.K. 27.4%, Singapore 10.4%, Germany 10.0%, Australia 8.0%, Switzerland 7.1%, Japan 7.1%, France 6.0%, Canada 4.5%, Sweden 4.4% and Hong Kong 3.9%. In comparison, the top countries within the MSCI EAFE include U.K. 22.1%, Japan 21.4%, France 9.7%, Switzerland 9.0% and Germany 8.7%.

Sector allocations include consumer discretionary 27.9%, consumer staples 5.5%, energy 8.1%, financials 15.9%, health care 10.9%, industrials 15.5%, information technology 6.5%, materials 7.8% and telecom services 2.2%. The MSCI EAFE allocations include a heavier tilt toward financials 25.0%, followed by industrials 12.5%, consumer staples 11.8%, consumer discretionary 11.5% and health care 10.3%.

The PowerShares DWA SmallCap Technical Leaders Portfolio (DWAS) tracks 200 companies selected from the 2,000 smallest U.S. companies that demonstrate relative strength. The fund has gained 27.6% year-to-date, whereas the Russell 2000 has increased 18.4%.

DWAS sector allocations include consumer discretionary 25.2%, consumer staples 2.2%, energy 4.0%, financials 15.8%, health care 17.4%, industrials 15.1%, information technology 11.9%, materials 7.8% and telecom services 0.6%. In comparison, the top Russell 2000 sectors include technology 15.8%, industrials 16.9%, consumer discretionary 15.1%, financials 13.7% and health care 11.4%.

For more information on ETF indexing, visit our indexing category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.