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A New Fixed-Income Momentum ETF Strategy

editor@etftrends.com (ETF Trends)

State Street Global Advisors has partnered up with Dorsey, Wright & Associates, a Nasdaq company, to launch a fixed-income exchange traded fund that implements a relative strength indexing methodology to focus on debt securities with strong forward momentum.

To commemorate the recently launched SPDR Dorsey Wright Fixed Income Allocation ETF (DWFI) , SSGA rang the Nasdaq stock market opening bell Friday.

DWFI tries to reflect the performance of the Dorsey Wright Fixed Income Allocation Index, which includes a handful of U.S.-listed fixed income SPDR ETFs that exhibit the greatest potential to outperform the other bond SPDR ETFs. DWFI has a 0.60% expense ratio.

“We think that bond markets are likely to exist in a low yielding and relatively uncertain environment for the foreseeable future, and we continue to look to provide unique solutions for investors to navigate these markets and seek to meet their return targets,” Nick Good, co-head of Global SPDR business at State Street Global Advisors, said in a press release. “With the launch of DWFI we are excited to have developed a relationship with Dorsey, Wright & Associates that allows SSGA to offer a convenient, cost effective, exchange traded vehicle tracking an index that is intended, through its relative strength methodology, to respond to changes in price of certain fixed income ETFs, which may reflect volatility, rates and yield spreads.”

Related: Manage Volatility, Generate Income with Muni Bond ETFs

Relative strength is a momentum investing technique that compares the performance of a security to that of the overall market and selects those that are the strongest performers. The momentum strategy basically bets that hot movers will continue to rise, so investors would essentially be buying high and selling even higher.

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The Dorsey Wright Index may select SPDR-related bond ETFs that cover U.S. and non-U.S. developed and emerging market bonds, treasury bonds, corporate bonds, high yield bonds, inflation protected bonds, floating rate notes, first lien senior secured floating rate bank loans, U.S. nonconvertible preferred stock and other preferred securities, U.S. municipal bonds and U.S. convertible securities, according to the prospectus sheet.

Currently, DWFI holds 25.1% SPDR Barclays International Treasury Bond ETF (BWX) , 25.0% SPDR Barclays Emerging Markets Local Bond ETF (EBND) , 25.0% SPDR Wells Fargo Preferred Stock ETF (PSK)  and 24.8% SPDR Nuveen Barclays Municipal Bond ETF (TFI) .

Related: A Popular Momentum ETF Undergoes Major Sector Rotation

ETF investors may be familiar with the other Dorsey Wright fund-of-funds momentum ETF strategies. For instance, the First Trust Dorsey Wright Focus 5 ETF (FV) , which has accumulated $3.3 billion in assets under management, takes a similar momentum approach, selecting five First Trust sector ETFs based on relative strength.

For more information on new fund products, visit our new ETFs category.