Invesco Powershares launches new ETF utilising Dorsey Wright sector index

Oct 20th, 2015 | By | Category: Equities

ETF Strategy events are back! Please join us for breakfast briefings on Digital Assets & the Blockchain Economy on Thursday 2nd September 2021 (08:15-11:00) and Thematic Investing on Friday 3rd September 2021 (08:15-11:15) both at Yauatcha City, Broadgate Circle, London. Sponsors include First Trust, GHCO, MSCI, Rize ETF, VanEck and WisdomTree.


Invesco PowerShares, a leading global provider of exchange-traded funds, has teamed up with Dorsey, Wright & Associates (DWA), a Virginia-based investment advisory firm, to bring to market the PowerShares DWA Tactical Sector Rotation Portfolio (DWTR).

New Invesco Powershares ETF utilises renowned Dorsey-Wright Sector index

Nick Kalivas, Senior Equity Product Strategist at Invesco PowerShares.

The ETF tracks the Dorsey Wright Sector 4 Total Return Index, using technical analysis to facilitate exposure to the strongest market sectors of the Nasdaq, based on relative strength indicators.

Commenting on the launch, Nick Kalivas, senior equity product strategist at Invesco PowerShares, said: “The power of this strategy results from its ability to take the DWA Sector 4 Index and package it in the efficient ETF wrapper, which potentially reduces tax burden, transaction costs, and eases portfolio implementation. Another benefit to this momentum strategy is that it may be used in tactical and strategic allocations when combined with other smart beta products or asset classes.”

In the context of the Dorsey Wright strategy, ‘relative strength’ compares the price performance, or momentum, between each sector. According to Dorsey Wright, the absolute momentum of the individual sectors is not as important as the relative momentum between the sectors. The model determines whether a sector’s momentum is increasing relative to another sector and assigns a buy signal if it is. The sectors are then ranked in descending order according to their cumulative number of buy signals.

Momentum based strategies rely on investors continuing to support stocks which are increasing in value. Investors are indeed trend chasers regarding stock movements, continuing to buy as the stock price increases and sell as it decreases. Some investor traits that have been identified through the study of behavioural finance may provide an explanation.

Investors tend to anchor themselves to perceptions of stock value, responding slowly to new information contradicting their valuations. Also, investors wish to avoid the regret of mistiming the market. In this case they may hold the stock longer than is prudent, not wishing to sell early and miss out on potential returns. Due to these factors, these strategies have historically provided superior returns when compared to broad market cap-weighted equity indices.

The new offering employs a ‘fund of funds’ structure, selecting its investments from the nine PowerShares DWA sector Momentum ETFs, rather than the shares of individual companies within each sector.

The methodology provides for a maximum of four chosen sectors at any one time which are then equally weighted. Directionless, narrow markets and markets with transitioning leadership tend to be periods where relative strength strategies will struggle. In these instances, when relative strength indicators are weak across the sector range, the fund invests in a short-term risk-free debt via the Nasdaq US T-Bill Part 2 Index, in increments of 25%, with a potential total of 100% when no sectors are exhibiting sufficient buy signals.

As of 19 October 2015, the fund was invested in the PowerShares DWA Consumer Staples Momentum Portfolio (27.6%), the PowerShares DWA Consumer Cyclicals Momentum Portfolio (26.6%), the PowerShares DWA Healthcare Momentum Portfolio (24.6%), and the PowerShares DWA Technology Momentum Portfolio (21.3%).

The fund is listed on the Nasdaq and carries a total expense ratio of 0.75%.

Tags: , , , , , , , ,

Leave a Comment