Low Volatility And Momentum Meet In This New ETF

Low volatility and momentum are two widely followed investment factors, but rare are the occasions that these two factors meet and stand as the primary factors under the umbrella of a single exchange-traded fund.

That changed a bit Thursday with the debut of the PowerShares DWA Momentum & Low Volatility Rotation Portfolio DWLV, the latest in a growing lineup of ETFs of ETFs from PowerShares, the fourth-largest U.S. issuer of exchange-traded funds. The new ETF follows the Dorsey Wright Multi-Factor Global Equity Index.

Welcome, DWLV!

That index “is designed to gain exposure to US or international equity markets through the universe of up to eight PowerShares momentum or low volatility ETFs, and may also hold up to 100 percent cash position (via 1- to 6-month US Treasury Bills) when equity securities as a whole are out of favor. The Fund and the Index are evaluated monthly for potential rebalance and reconstitution,” according to PowerShares.

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At a time when low volatility ETFs are not only delivering for investors in terms of returns, but are also on the receiving end of billions of dollars in new assets, it is not surprising that DWLV debuted with a heavier tilt to such ETFs.

Home to four other PowerShares ETFs, the PowerShares S&P SmallCap Low Volatility Portfolio (PowerShares Exchange-Traded Fund Trust II XSLV) and the PowerShares S&P 500 Low Volatility Portfolio (PowerShares Exchange-Traded Fund Trust II SPLV) combine for nearly 70 percent of DWLV's weight. The momentum portion of the new ETF's lineup comes by way of the PowerShares DWA SmallCap Momentum Portfolio DWAS and the PowerShares DWA Momentum Portfolio (PowerShares DWA Technical Ldrs Pf (ETF) PDP).

“DWLV's underlying index offers pure exposure to the low volatility factor, without sector constraints, blended with an ability to identify meaningful momentum trends for potential diversification benefits. DWLV also offers global tactical exposure by tracking the Dorsey Wright Multi-Factor Global Equity Index, which systematically evaluates on a monthly basis the relative strength of six global asset classes in determining an allocation between US and international equity ETFs and cash,” according to a statement.

PowerShares has achieved previous success with the ETF of ETFs model. For example, the PowerShares DWA Tactical Sector Rotation Portfolio DWTR debuted in October and already has $172.4 million in assets while the PowerShares DWA Tactical Multi-Asset Income Portfolio DWIN debuted in March and has $87.6 million in assets.