A New ETF With Multiple Income Avenues
Last week, the PowerShares DWA Tactical Multi-Asset Income Portfolio (NASDAQ: DWIN) joined what is becoming a long line of exchange traded funds that use of the ETF of ETFs approach.
While the PowerShares DWA Tactical Multi-Asset Income Portfolio's status as an ETF of ETF is not unique per se, what is notable about this rookie fund is its commitment to income, a hallmark of multi-asset ETFs.
DWIN follows the Dorsey Wright Multi-Asset Income Index. That index “invests its assets in the shares of other, underlying exchange-traded funds eligible for inclusion in the Index, rather than in securities of individual companies. The Index is designed to select investments from a universe of income strategies with the criteria for inclusion based on a combination of relative strength and current yield,” according to PowerShares.
DWIN holds five other PowerShares ETFs, spanning asset classes such as common dividend stocks, emerging markets bonds and Build America bonds. The diversified approach to generating income could help mitigate risk at a time when many investors are still hungry for yield.
“In a quest for higher income, many investors have taken on additional risk in the form of master limited partnerships (MLPs), high yield bonds and real estate investment trusts (REITs). These non-traditional sources of income may offer greater yields than aggregate bond portfolios, but can leave investors vulnerable to shifting market momentum – underscoring the need for credit diversification. By diversifying a non-aggregate income allocation across a broad range of investments with disparate drivers of return, investors can potentially enhance performance, while diluting the impact of market volatility,” said PowerShares in a recent note.
There is something to DWIN's approach to income because figuring out what income-generating asset class will lead at the start of a given year is not easy. As PowerShares data indicate, since 2007, only two income asset classes have been annual leaders on multiple occasions – MLPs and preferred stocks.
DWIN has preferreds covered with the PowerShares Preferred Portfolio (NYSE: PGX) as its largest holding. PGX accounts for 21 percent of DWIN's weight while the PowerShares Emerging Markets Sovereign Debt Portfolio (NYSE: PCY) is DWIN's smallest holding at just under 19 percent.
In the event of all out market chaos, DWIN can protect investors as well.
DWIN's “portfolio can even convert to up to 80% US Treasuries in cases of extreme market turbulence – offering the potential for upside participation and downside risk mitigation,” notes PowerShares.
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