Regular readers know our fondness for the smart beta category. When you have quantitative algorithms that work as well as ours, you believe in the methodology. PowerShares is the leader in this space between active and passive management and their Dynamic OTC Portfolio (PWO) is today’s 10 Green Diamond Fund. If you bought it when it earned that distinction in January you are happy now. The nature of smart beta however is that fund from January is not the same as the one today.
PWO tracks the Dynamic OTC Intellidex Index which makes quarterly selections from the NASDAQ Market that it views as having superior risk-return profiles, February’s reconstitution will remain in place until May. Infotech makes up slightly more than half of AUM down a bit from 54% when it got 10 Green Diamonds in January. Consumer discretionary and health care round out three quarters of AUM but are all lower weights than the NASDAQ Index. The selection process has produced about double the benchmark’s performance this year, a record becoming commonplace with these Intellidex funds. This portfolio earned 10 Green Diamonds as recently as March 15th which happened to be the selection day for ETF Global’s own smart beta indices when PWO joined the ETFGsm Quant Equity 10 Index (ETFGQE10). Thin trading disqualifies it from our Golden Dozen (ETFGQE12) but its tear sheet shows all 100 constituents with recognizable names and plenty of liquidity. If you are considering a sizable block, your PowerShares representative should be able to facilitate it smoothly.
If you have yet to consider a smart beta fund, you ought to take a look. In the age of Big Data, quantitative analysis has become an important driver of market returns and PowerShares has an impressive lineup. The ETF Globalsm quantitative models incorporate modern behavioral finance based on voluminous empirical data with traditional Graham-Dodd fundamental analysis. We may not call them all as our models have yet to favor Japan and financials but since inception last summer, ETFGsm has consistently identified the leading areas which thus far in 2013 has been the broad US market with few exceptions. Slightly different from the Diamonds, Quant’s top rank today is held again by SPY. That will bring our performance versus the S&P 500 down when we publish our monthly report next week but we are happy to be steering you to the best parts of the diverse world of ETFs. Thank you for reading and have a nice weekend.