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Double the S&P with this Unique Fund
By: Nathan Slaughter
Editor, The ETF Authority
Learn more about The ETF Authority (click here)
Published: September 10, 2007

PowerShares DWA Technical Leaders (NYSE: PDP, $24.99) -- When evaluating the merits of an investment, most of us rely on fundamental analysis: sales, earnings, profit margins, P/E ratios, etc. However, a number of investors subscribe to a completely different philosophy that attempts to forecast near-term stock movements based on charts and various indicators.

These chartists, otherwise known as technical analysts, pay close attention to things like moving averages, trading volume, and support/resistance levels while using an array of mathematical indicators to determine whether a stock or index should be bought or sold.

Until lately, followers of technical analysis were basically shut out of the world of ETFs and closed-end funds. However, PowerShares has recently launched a new ETF based on the work of Dorsey Wright (a prominent technical analyst). Specifically, the fund tracks an index comprised of 100 stocks showing superior relative strength characteristics. In other words, only the stocks that have posted the strongest gains relative to their benchmark (known as momentum) make it into the index.

Of course, trends can change, so the index is re-configured every quarter. At the moment, it is heavily tilted towards mid-cap growth stocks, which represent more than half of the fund's assets. Top holdings include Titanium Metals (NYSE: TIE), American Tower (NYSE: AMT), and Energizer holdings (NYSE: ENR).

While the fund itself is new, back-tested data suggests the index it tracks stands a pretty good chance of outperforming the broader market. In fact, the Dorsey Wright Technical Leaders Index would have more than doubled the return of the S&P 500 over the past ten years.


Our View -->  We are generally skeptical of momentum-based investing, which relies on the theory that there will always be someone around to pay more for a stock than you did. Clearly, market leadership can and does rotate from time to time.

However, we are also aware that many investors chase returns, meaning hot stocks attract interest and can get even hotter. If this index can nimbly identify market winners, ride them to a peak, and then dump them before they lose favor, then it could do well. However, that is a tall order, and it seems prudent to see the fund in action before investing hard-earned dollars into it.
 


Nathan Slaughter
Editor
The ETF Authority

About The ETF Authority

The mission of The ETF Authority is to help our readers identify today's most profitable ETFs and closed-end funds. (Learn More)

About Nathan Slaughter

Nathan Slaughter has developed a long and successful track record over the years by investing in both exchange-traded funds (ETFs) and deeply discounted value securities. When it comes to ETFs, Nathan has created a proprietary ranking system that helps him zero in on today's most promising funds.

Nathan's previous experience includes a long tenure at AXA/Equitable Advisors, where he provided comprehensive investment advisory services to small businesses and high net-worth clients. He also honed his research skills at Morgan Keegan, where he performed asset allocation, retirement planning, and consultative portfolio management services.

Several years ago Nathan switched gears and decided to devote his time exclusively to financial analysis and writing. He has since published hundreds of articles for a variety of prominent online and print publications, and he now writes exclusively for StreetAuthority.com.

Nathan's educational background includes NASD series 6, 7, 63, & 65 certifications, as well as a degree in Finance/Investment Management. He currently resides in Shreveport, LA with wife Julie and sons Aidan and Riley. 

To learn more about Nathan Slaughter's premium investing newsletter -- The ETF Authority -- please visit this link.


 

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