Momentum ETFs To Play New Highs
The S&P 500 is trading near an all-time high and the Nasdaq recently touched the highest level in 14 years. Stocks in all sectors are breaking out to new highs as the five-year-old bull market rages on. There is no surprise the ETFs that attempt to track momentum are outperforming.
Using a strategy that compares the performance of stock to the overall market and its sector tends to produce a basket of stocks that have been leading the market higher. As someone once said, “new highs beget new highs,” or buy high and sell higher. This strategy tends to do well when the bulls rule the overall market.
Investors looking to catch the later years of this bull market could consider riding the momentum trade. PowerShares has a number of index-focused ETFs that use momentum strategies; a few interesting options are listed below.
When considering them, investors should be aware of a momentum ETF-specific risk: eventually markets will suffer a pullback greater than 5 percent and the momentum stocks could be the hardest hit.
Related Link: A Closer Look At 2 New Actively Traded ETFs
PowerShares DWA Momentum Portfolio (NYSE: PDP)
The PowerShares DWA Momentum Portfolio includes 100 U.S mid- to large-cap companies that fit the bill of “momentum” stocks. The top holdings include Apple Inc. at 3.1 percent, TRW Automotive Holdings Corp at 2 percent and O’Reilly Automotive Inc at 2.9 percent. With only 8 percent of the allocation in the top three holdings the fund is considered diverse.
The ETF is up 23 percent over the last 12 months and 5 percent over the last six months. An expense ratio of 0.65 percent makes it slightly more expensive than the average ETF but in line with its niche peers.
PowerShares DWA Emerging Markets Momentum Portfolio (NYSE: PIE)
The PowerShares DWA Emerging Markets Momentum Portfolio consists of 100 companies that possess powerful relative strength characteristics and are part of emerging market economies. The fund is distributed throughout 10 sectors in 10 countries. The largest holdings in the fund are Hanssem Co Ltd at 2.8 percent, Universal Robina Corp at 2.3 percent and Coronation Fund Managers Ltd at 2.1 percent.
PIE has been able to outperform the broad-based iShares MSCI Emerging Markets Indx (ETF) (NYSE: EEM) by 300 basis points over the last 12 months, gaining 15 percent. The last six months have been solid with a gain of 11 percent and a new 52-week high. With an expense ratio of 0.9 percent it is one of the more expensive ETFs on the market.
The PowerShares DWA Basic Materials Momentum Portfolio (NYSE: PYZ)
The PowerShares DWA Basic Materials Momentum Portfolio has the smallest number of holdings of the three with 36. Because the ETF is focused on a niche area of the market, it has a high sector concentration with 81.6 percent of the portfolio invested in the chemicals sector. The top three holdings in the fund include Westlake Chemical Corporation at 5.2 percent, W.R. Grace & Co. with a 4.5 percent holding, and LyondellBasell Industries NV at 4.4 percent.
Despite having the most consolidated holdings, PYZ has performed the best out of the three -- up 29 percent over the last 12 months and up 8 percent over the last six months. A 0.60 percent expense ratio puts it on par with its competition.
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