Earlier this year, First Trust launched a unique momentum-based strategy that selects five underlying sector or industry ETFs according to a relative strength-ranking system.
This index was developed by Dorsey, Wright & Associates as a method of objectively selecting the best performing sectors relative to other ETFs in the universe.
The end result is the First Trust Dorsey Wright Focus 5 ETF (NASDAQ: FV), which currently has equal allocations to biotechnology, health care, internet, consumer staples and consumer discretionary ETFs. In just a few short months, FV has gained more than $360 million in total assets, which ranks it as one of the best new ETF launches of 2014.
One of the most unique aspects of this index is that the constituents are evaluated and rebalanced on a weekly basis to favor the strongest areas of the market. Underlying ETFs are replaced when their momentum ranking score falls sufficiently below alternative sectors.
To compliment this U.S.-based momentum ETF, First Trust has launched an international version on Wednesday named the First Trust Dorsey Wright International Focus 5 ETF (NASDAQ: IFV). This new iteration is designed to give investors a tactical edge when considering overseas exposure for their portfolios.
IFV will use the same methodology to select major themes in foreign markets that are showing excellent relative momentum, and to evaluate each holding on a weekly basis. The ability to have this index objectively select the strongest countries or regions may be seen as a unique advantage to ETF investors.
Similar international ETFs in the momentum space include the PowerShares DWA Developed Markets Momentum Portfolio (NYSE: PIZ) and the PowerShares DWA Emerging Markets Momentum Portfolio (NYSE: PIE). These funds represent a combined $1 billion in total assets.
They are also backed by Dorsey Wright indexes, which select 100 of the best performing stocks in each category.
There is clearly a strong demand for these sophisticated ETFs, and a new entrant in the space will likely be well-received by investors seeking innovative investment strategies.
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