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Under The Hood: A Slice of PIE

by
August 2, 2012 1:16 pm
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Under The Hood: A Slice of PIE

One of the more noticeable trends in the exchange-traded products business over the past several years has been a growing number of developing nations now represented by ETFs. The emerging markets ETF game is not just about the Vanguard MSCI Emerging Markets Index Fund (NYSE: VWO), the iShares MSCI Emerging Markets Index Fund (NYSE: EEM) and those funds that offer exposure to China and Brazil.

These days, investors can gain exposure to a broad swath of countries and regions and with that number constantly rising, it is not surprising that a few emerging markets ETFs slip through the cracks.

One example is the PowerShares DWA Emerging Markets Technical Leaders Portfolio (NYSE: PIE). Like VWO and EEM, the two largest emerging markets ETFs, the PowerShares DWA Emerging Markets Technical Leaders Portfolio is a multi-country play on developing nations. However, PIE goes about its business in far different fashion than VWO and EEM do.

For example, PIE tracks an index that includes approximately 100 companies that possess powerful relative strength characteristics. The ETF is rebalanced and reconstituted quarterly, PowerShares. The focus on relative strength, not just a country’s weighting in an emerging markets index means PIE’s country weights are noticeably different than what investors will find with VWO and EEM.

After the most recent rebalance, PIE now allocates almost 15.2 percent of its weight to Malaysia, one emerging market worth crowing about. South Korea, Indonesia, China and Thailand round the country’s top-five country allocations, highlighting the fact that at the moment PIE eschews Latin America in favor of Asia-Pacific. Mexico and Brazil combine for almost 16 percent of PIE’s weight.

With nearly $163 million in assets under management, PIE is at least large enough to stay afloat and average daily volume is fair at almost 111,000 shares. Of course, those numbers are dwarfed by what VWO and EEM boast. Plus, PIE is pricier than its larger rivals with an annual expense ratio of 0.9 percent.

However, PIE does have one extremely important point in its favor. Over the past year and year-to-date, PIE has outperformed its larger rivals, indicating that there is indeed something to focusing on relative strength. It is also worth noting that over the past three years, the Dorsey Wright Emerging Markets Technical Leaders Index, the index PIE tracks, has sharply outpaced the MSCI Emerging Markets Index, the index VWO and EEM track.

With central banks around the world disappointing investors on the stimulus front and economic data showing mediocre at best, the near-term outlook is murky for emerging markets ETFs. That must be acknowledged, but it also must be acknowledged that when the environment becomes more hospitable to investing in developing nations, PIE merits consideration among ETF investors.

For more on emerging markets ETFs, click here.


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