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Momentum Vs. Cap-Weighted Sectors: Know What You Own

In February of 2014, we were hired to be the index provider for 9 PowerShares sector ETFs and they then became the PowerShares DWA Momentum Sector ETFs. This was an extension of the work that we were already doing with PowerShares in creating the indexes used for [[PDP]], [[PIE]], [[PIZ]], and [[DWAS]]. The idea behind these Momentum sectors was to identify the top momentum names from each sector and then weight the stocks in the index by momentum. This is a clear departure from creating a sector index that is just weighted by market capitalization. To get an idea of just how different a momentum-weighted and a capitalization-weighted sector ETF can be, consider the table below. It shows the top 5 holdings and weights of those holdings in each of our momentum sectors and compares that exposure to a capitalization-weighted ETF.

(click to enlarge)

Source: PowerShares and State Street, AsRead More …