After a brief hiatus of launches, the ETF industry appears to firing on all cylinders once again, as evidenced by the flurry of activity as of late. While the trend had been focused in on smaller issuers in the last few days, PowerShares has joined the wave with the debut of its new DWA Small Cap Technical Leaders Portfolio (DWAS - ETF report) .
The new fund puts PowerShares just short of 170 ETFs in total and it helps continue the major issuer’s expansion into more niche segments. It also ends a streak of about five months in which the company was without a single launch, breaking a relatively long time period of little activity for the firm (also read Can You Beat These High Dividend ETFs?).
DWAS In Focus
The new product tracks the Dorsey Wright Small Cap Technical Leaders Index which looks to identify small companies that have positive relative strength characteristics. In total, DWAS looks to include about 200 stocks in its basket from a universe of roughly 2,000 of the smallest U.S. publically traded companies that are on the market today.
With this approach, the fund will charge investors 60 basis points a year in fees, putting it well above many pure market cap weighted funds in the small and mid cap segments of the market (see Mid Cap ETF Investing 101).
However, this is largely due to the more ‘active’ methodology employed by this ETF as only the top ten percent of stocks are included in the basket and it isn’t unreasonable to assume that more work will have to be done in terms of adjusting the portfolio at the quarterly rebalancing dates.
In terms of the fund’s top holdings, investors should note that the product is pretty well spread out, putting no more than 1.7% in any one security. Small caps account for roughly 80% of the total, although mid caps do make up roughly 20% as well (see more in the Zacks ETF Center).
For sectors, the product appears to be, at time of writing, focused in on health care, technology, and financials. Meanwhile, DWAS is light in materials, consumer staples, and energy, as these three combined do not make up as much of the fund as the top sector, health care, does.
The fund launch also helps to expand the reach of PowerShares’ suite of Dorsey Wright-focused ETFs into the small cap space. The firm already has three ETFs in the segment including ones targeting the Emerging Markets (PIE - ETF report) , Developed Markets (PIZ - ETF report) , and the broad U.S. market (PDP - ETF report) .
All three have seen decent inflows since their respective inception dates, with PDP being the most popular at just over half a billion in AUM. This is despite all three charging more than both DWAS and other low cost choices in the space (see The Trend Is Your Friend With These Three ETFs).
Clearly, investors have been willing to pay up for the methodology thanks to some solid outperformance in the market by all of the funds in the DWA segment. In fact, over the past three years, PDP, PIZ, and PIE, have all outperformed their benchmarks, suggesting that if DWAS can match this history, it too could become a winner for PowerShares in the increasingly competitive ETF market.
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