Concept ETFs: Industry Rotation (PYH) and Technical Leaders (PDP) Providing Portfolio Stability
22 April 2008 at 2:02 pm by Gary Gordon
Most sectors of the economy and most broad-based measures of the U.S. stock market still remain below their 200-day trendlines. (Energy and Materials are the exceptions to the rule.) Yet several strategic alternatives, or "Concept ETFs," have recently moved into a favorable technical light.
Consider the PowerShares Value Line Industry Rotation Fund (PYH). It was impressive enough to garner 14% in 2007. In 2008 (through 4/18), its -4.4% remains relatively manageable. Better yet, its price recently climbed above its long-term trend. (That’s something the S&P 500 SPDR Trust SPY is still 4%-5% away from reaching.)
Of course, PYH is not the first fund to put forward an ETF that specializes in moving into and out of the "hot" sectors. The Claymore/Zachs Sector Rotation Fund (XRO) has traveled this path as well, with extremely similar results. Yet the important item to note is the relative success of "Concept ETFs" when compared with the overall market.
In a post last November, I noted that many strategic/conceptual ETFs were outperforming the broader markets. Granted, asset class ETFs (currency, commodity, bond, stock) must remain core holdings for a diversified portfolio. Nevertheless, there’s ample reason to consider: (a) sector rotation, (b) covered calls, (c) "currency harvesting" and even (d) "technical leadership."
The latter concept has its own exchange-traded vehicle, the PowerShares DWA Technical Leaders Fund (PDP). Through 4/18/2008, it was down a mere 3%. Better yet, Technical Leaders (PDP) is also in a "technical uptrend."
The PowerShares DWA Technical Leaders Fund (PDP) tracks an index that pulls 100 U.S.-listed companies from a pool of 3000. The 100 pulled are purported to have powerful relative strength in a particular sector or sub-sector. The index is reconstructed quarterly.
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