Market Overview

Remember This EM ETF With The Nifty Ticker

Remember This EM ETF With The Nifty Ticker
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The strength being displayed by emerging markets equities and the relevant exchange-traded funds is getting harder to ignore. For example, dozens of emerging markets ETFs hit 52-week highs on Wednesday with one of those being an seasoned veteran among alternatively-weighted funds in this asset class: the PowerShares DWA Emerging Markets Momentum Portfolio (NASDAQ: PIE).

Well before the notion of alternatively-weighted benchmarks permeated the emerging markets ETF landscape, the PowerShares DWA Emerging Markets Momentum Portfolio established itself as one of the original ETFs tracking developing economies to eschew weighting stocks by market capitalization.

PIE, which turns 10 years old in December, follows the Dorsey Wright Emerging Markets Technical Leaders Index. That index is a momentum-driven strategy with the potential to outperform cap-weighted rivals when emerging markets stocks are in rally mode as they are today.

How PIE's Index Works

PIE's index “includes approximately 100 companies from the NASDAQ Emerging Markets Index that possess powerful relative strength characteristics and are domiciled in emerging market countries,” according to PowerShares.

At the geographic level, the ETF's selection universe includes Brazil, Chile, China, India, Indonesia, Philippines, South Africa, Thailand and Turkey. Although PIE is a momentum strategy rooted in relative strength analysis, that does no mean the ETF cannot hold some of the more docile, lower beta emerging markets. Currently, Taiwan is the ETF's largest country weight at over 34 percent. Taiwan is historically one of the least volatile developing markets.

China is the ETF's second-largest country weight at just over 30 percent. Eight other countries are represented in PIE with Thailand being third-largest at almost 9 percent.

Focusing On Growth

In various market settings, any sector can display momentum and positive relative strength traits, but PIE's current sector composition is not surprising. The good news is PIE levers investors to some of the most attractive growth areas in the emerging world.

PIE allocates 49 percent of its combined weight to technology and consumer discretionary stocks. The compares to an allocation of 36 percent to those sectors in the MSCI Emerging Markets Index. Likewise, PIE is significantly underweight financial services and energy names, groups where plenty of state-owned companies dwell.

PIE's weight to those sectors is about 17 percent compared to around 30 percent in the MSCI Emerging Markets Index. PIE is up 23 percent year to date, trailing the emerging markets benchmark by 200 basis points.

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