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Tuesday's ETF of the Day: Momentum Investing Outside the U.S. (PIZ)

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Tuesday's ETF of the Day: Momentum Investing Outside the U.S. PIZ

The global bull market is in full force even though stocks are experiencing a bout of selling before the Christmas holiday.

A strong bull market, similar to what stocks are experiencing now, will typically be kind to investors that use a momentum strategy to build a portfolio.

Momentum stocks will more than likely outpace the returns of the overall market during a bull market and they have the charts to back it up. On the flip side, when a bull market crashes the momentum stocks are hit the hardest and will underperform.

See also: Oversold ETFs Looking Attractive (IHE, CSD, PSCE)

Because the global bull market has no technical signs of slowing, the momentum trade is alive and well and investors should not overlook the ETFs in the sector. The average investor is overexposed to stocks based in the U.S. and do not have sufficient exposure to developed markets around the world.

The PowerShares DWA Developed Markets Momentum ETF (NYSE: PIZ) combines stocks that possess relative strength (momentum) characteristics along with exposure to developed markets outside of the U.S. The strategy has been working this year with the ETF up 28 percent with two weeks left in 2013.

The U.K. makes up 30 percent of the ETF portfolio, followed by Germany at nine percent, Japan at 8 percent, and Switzerland at eight percent. Consumer discretionary stocks account for nearly one-third of the allocation and the industrials make up 19 percent. Of the 100 stocks that make up the ETF, about half fall into the large-cap asset class and the other half are in the mid-cap space.

The top ten holdings account for approximately 23 percent and the majority of the names will be unknown to U.S. investors. Because the ETF is not permitted to hold any U.S. stocks that are traded on a U.S. exchange, it eliminates the household companies. The number one holding is Galaxy Entertainment, a Hong Kong-based owner and operator of hotels and casinos in Macau. The stock is up over 100 percent this year.

Technically PIZ has been consolidating near a multi-year high, which is a bullish long-term pattern. A breakout appears to be imminent for the ETF and new all-time highs are likely around the corner.

 

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