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A Smart Beta Small-Cap ETF Zooming to New Highs

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This article was originally published on ETFTrends.com.

Count the PowerShares DWA SmallCap Momentum Portfolio (DWAS) among the small-cap exchange ascending to new highs. After hitting another record high Monday, DWAS is up about 4.5% over the past month and nearly 9% year-to-date.

DWAS follows the popular Dorsey, Wright & Associates proprietary selection methodology that is designed to identify small-cap firms with positive relative strength characteristics in an attempt to follow companies with strong forward momentum. The ETF follows the Dorsey Wright SmallCap Technical Leaders Index.

That index “includes securities pursuant to a Dorsey, Wright & Associates, LLC proprietary selection methodology that is designed to identify companies that demonstrate powerful relative strength characteristics based on that company’s market performance. Approximately 200 companies are selected for inclusion in the Index from the NASDAQ US Benchmark Index,” according to PowerShares.

A Focused Approach

DWAS holds 200 stocks, a relatively small roster compared to traditional small-cap funds tracking benchmark such as the Russell 2000 Index. That is not a mark against DWAS. Rather, the fund's focused lineup gives investors exposure to smaller companies with compelling technical and growth potential.

Smaller companies, which focus on U.S. markets, are less exposed to a stronger U.S. dollar as rates rise, which would more negatively affect larger corporations with a global footprint. Additionally, periods of rising rates also coincide with expanding economies, which often benefit smaller companies.

DWAS components have an average market value of just over $1.9 billion and about 72% of the fund's holdings are classified as small- and mid-cap growth names.

When the economy is doing well and the markets rally, we see sentiment for more nimble smaller companies improve and outperform those of their more languorous, larger peers. Indeed, DWAS tilts toward cyclical fare at the sector level. The financial services, industrial and technology sectors combine for about half the ETF's weight. Healthcare is the ETF's largest sector exposure at 30.30%, but smaller healthcare companies are usually growth fare and not as defensive as their large-cap counterparts.

DWAS turns six in July and has $282.3 million in assets under management.

For more information on factor-based strategies, visit our smart beta category.

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