Dorsey, Wright & Associates Alpha Generation With ETFs Tom Dorsey President, Founder tom@dorseywright.com www.dorseywright.com P: 804-320-8511 1 For Financial Professional Use Only. Not For Use With The Public.
Research Services: Daily Equity & Market Analysis Report a daily research report covering global capital markets, focusing upon tactical asset rotation and risk management. Extensive technical analysis website available with over 7,000 domestic stocks, 19,000 international stocks, 15,000 mutual funds, and 1,400 ETFs charted on a Point & Figure basis 29 different Guided ETF Model Portfolios, covering the scope of asset classes and ETF providers Weekly ETF Reports featuring each of the 29 guided models. DWA Media produces its own multimedia (video) presentations and weekly podcasts D.A.L.I.: Asset Allocation Guidance based upon relative strength analysis across, and among, asset classes. Custom ETF Portfolios: Asset Allocation Model Management, provided through select trading platforms to DWA Clients Most Recently Published Book by DWA: Point & Figure Charting, 3rd Edition DWA Background: Founded January 1987 Money Management Services & Products: Separately Managed Accounts: Numerous account choices, from Systematic RS to Global Macro Variable Annuties: Rydex Dynamic Advantage Program/Nationwide Annuity (3 different models) Mutual Funds: Arrow DWA Balanced Fund (DWAFX) Arrow DWA Tactical Fund (DWTFX) Exchange Traded Funds: PowerShares DWA Technical Leaders (PDP) PowerShares DWA Developed Leaders (PIZ) PowerShares DWA Emerging Leaders (PIE) PowerShares DWA Small Cap Leaders (DWAS) Unit Investment Trusts with First Trust: Dorsey, Wright RS Dividend Trust Dorsey, Wright RS Top 50 Trust For Advisor Use Only. Not For Use With The Public.
Embracing Exchange Traded Funds 20 Years of ETF Asset Growth Today ETFs comprise roughly 1/3 rd of trading volume on NYSE 1500 1400 1300 1200 1100 1000 900 800 700 600 500 400 300 200 100 US-listed Exchange Traded Products (ETP): Assets Growth vs.product Expansion As of 8/30/12 1200 1000 800 600 400 200 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* Products (#) 1 1 2 19 19 29 30 81 101 113 117 152 201 343 601 698 772 1099 1369 1486 ETF Assets ($Bil) 0.5 0.4 1.1 2.4 6.7 15.6 33.9 65.6 84.6 102.3 150.7 227.7 299.4 406.8 580.7 497.1 705.5 1012 1060.21235.1 3 0 For Financial Professional Use Only. Not For Use With The Public.
ETF World Circa 2000: 30 ETFs Growth of the ETF World Since 2000 ETF World Circa 2012: approx. 1,500 ETFs The investment lights of the world have been turned on For Advisor Use Only. Not For Use With The Public. 4
ETFs Across Every Major Asset Class Now What? With 1,500 ETFs also comes the need to choose among them and determine a manner in which to use them together For Advisor Use Only. Not For Use With The Public. 5
Building a Business And a Brand Rinse Wash Rebalance Mean Variance Optimization Source: wealthfront.com
December 31, 1999 - December 31, 2011 December 31, 1999 - December 31, 2011 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2000-2011 Money Int'l Int'l Int'l Fixed Int'l Fixed Commod. Market Commod. Equities Equities Commod. Equities Commod. Income Equities Commod. Income Commod. 14.39% 3.33% 18.42% 40.83% 20.91% 21.44% 26.65% 17.24% 2.05% 33.79% 25.19% 4.07% 117.43% Money Fixed Foreign US Int'l US Int'l Money US US Strategic Money Fixed Foreign US Int'l US Int'l Money US US Strategic Market Income Currency Equities Commod. Equities Equities Equities Market Equities Equities DWA6040 Allocation Market Income Currency Equities Commod. Equities Equities Equities Market Equities Equities DWA6040 Allocation 5.91% 1.81% 9.75% 27.37% 12.47% 16.62% 13.34% 12.63% 1.33% 23.89% 14.18% 0.62% 30.54% 5.91% 1.81% 9.75% 27.37% 12.47% 16.62% 13.34% 12.63% 1.33% 23.89% 14.18% 0.62% 30.54% Fixed Foreign Fixed Strategic Strategic Strategic Strategic Foreign Foreign Strategic Strategic Money Money Income Currency Income Allocation Allocation Allocation Allocation Currency Currency Allocation Allocation Market Market 4.18% -5.33% 2.37% 24.24% 11.10% 7.30% 12.93% 7.62% -10.06% 22.14% 10.36% 0.05% 30.40% Money US US Strategic US Foreign DWA6040 DWA6040 Market DWA6040 Equities Equities Commod. Allocation DWA6040 Commod. DWA6040 Equities Currency -4.07% -6.82% 1.58% 15.26% 9.84% 3.65% 9.19% 6.25% -23.01% 20.07% 8.92% -0.14% 27.97% Strategic Strategic Strategic Foreign Foreign Money Money Int'l Foreign Fixed Allocation Allocation Allocation Currency Currency Market DWA6040 Market Commod. DWA6040 Equities Currency Income -4.58% -8.70% -7.72% 14.93% 6.27% 3.01% 7.79% 4.36% -27.05% 14.37% 8.69% -1.63% 15.91% Foreign US Foreign Strategic Foreign Foreign Strategic Int'l Currency Equities DWA6040 Commod. DWA6040 DWA6040 Currency DWA6040 Allocation Currency Currency Allocation Equities -6.65% -11.77% -13.13% 11.32% 5.32% -1.96% 6.93% 3.61% -28.89% 8.93% 5.86% -4.67% 12.96% US Int'l Money Money Fixed Money US US Money Fixed Equities Commod. Equities Market Market Income Market Equities Equities Market Income Commod. DWA6040-8.03% -17.18% -14.95% 0.98% 1.40% -2.04% 4.74% 3.47% -37.81% 0.21% 2.14% -9.20% -0.41% Int'l Int'l US Fixed Fixed Foreign Fixed Fixed Int'l Fixed Money Int'l US Equities Equities Equities Income Income Currency Income Income Equities Income Market Equities Equities -15.31% -19.73% -22.53% -0.67% -0.39% -7.99% -0.70% 2.74% -43.48% -0.48% 0.16% -16.07% -6.09% Legend: Fixed Foreign Fixed Strategic Strategic Strategic Strategic Foreign Foreign Strategic Strategic Money Money Income Currency Income Allocation Allocation Allocation Allocation Currency Currency Allocation Allocation Market Market 4.18% -5.33% 2.37% 24.24% 11.10% 7.30% 12.93% 7.62% -10.06% 22.14% 10.36% 0.05% 30.40% Money US US Strategic US Foreign DWA6040 DWA6040 Market DWA6040 Equities Equities Commod. Allocation DWA6040 Commod. DWA6040 Equities Currency -4.07% -6.82% 1.58% 15.26% 9.84% 3.65% 9.19% 6.25% -23.01% 20.07% 8.92% -0.14% 27.97% Strategic Strategic Strategic Foreign Foreign Money Money Int'l Foreign Fixed Allocation Allocation Allocation Currency Currency Market DWA6040 Market Commod. DWA6040 Equities Currency Income -4.58% -8.70% -7.72% 14.93% 6.27% 3.01% 7.79% 4.36% -27.05% 14.37% 8.69% -1.63% 15.91% Foreign US Foreign Strategic Foreign Foreign Strategic Int'l Currency Equities DWA6040 Commod. DWA6040 DWA6040 Currency DWA6040 Allocation Currency Currency Allocation Equities -6.65% -11.77% -13.13% 11.32% 5.32% -1.96% 6.93% 3.61% -28.89% 8.93% 5.86% -4.67% 12.96% US Int'l Money Money Fixed Money US US Money Fixed Equities Commod. Equities Market Market Income Market Equities Equities Market Income Commod. DWA6040-8.03% -17.18% -14.95% 0.98% 1.40% -2.04% 4.74% 3.47% -37.81% 0.21% 2.14% -9.20% -0.41% Int'l Int'l US Fixed Fixed Foreign Fixed Fixed Int'l Fixed Money Int'l US Equities Equities Equities Income Income Currency Income Income Equities Income Market Equities Equities -15.31% -19.73% -22.53% -0.67% -0.39% -7.99% -0.70% 2.74% -43.48% -0.48% 0.16% -16.07% -6.09% Legend: $150,000 Strategic Allocation Inventory Strategic Inventory Allocation Tactical Allocation Strategic Allocation Weighting $140,000 Money Market DWA Inventory Money Money Market (MNYMKT) Market Vanguard Inventory Total Stock Market ETF (VTI)* Weighting 26.70% Fixed Money Income Vanguard Total Bond Fund (BND) MSCI EAFE ETF (VEA) $130,000 Market DWA Money Market (MNYMKT) Vanguard Total Stock Market ETF (VTI)* 26.70% 19.40% Foreign Fixed Currency Income DWA Vanguard Foreign Currency Total Bond Index Fund (DWAFXI) (BND) Vanguard MSCI MSCI Emerging EAFE Markets ETF ETF (VEA) (VWO) 19.40% 10.40% $120,000 Commodity Foreign Currency Greenhaven DWA Foreign Commodity Currency Fund (GCC) Index (DWAFXI) Vanguard REIT MSCI Index ETF Emerging (VNQ)* Markets ETF (VWO) 10.40% 7.30% $110,000 Greenhaven Commodity Fund ipath Vanguard Dow Jones-UBS REIT Index Commodity ETF Index (VNQ)* ETN (DJP) International Commodity Equities SPDR (GCC) MSCI ACWIsm ex-us ETF (CWI) 7.30% 6.20% US Equities $100,000 ishares S&P 1500 Index (ISI) Vanguard ipath Dow Total Jones-UBS Bond Market ETF Commodity (BND) Index ETN 30.00% International Equities SPDR MSCI ACWIsm ex-us ETF (CWI) (DJP) 6.20% $90,000 DWA US Equities 6040 Index (DWA6040) represents ishares a daily S&P rebalanced 1500 Index index of (ISI) 60% S&P 500 Index (SPX) and 40% Vanguard Total Vanguard Bond Index Total (BND) Bond Market ETF (BND) 30.00% $80,000 * Prior to 2002, EUSA was substituted for VTI for hypothetical returns, and IYR was substituted for VNQ DWA 6040 Index (DWA6040) represents a daily rebalanced index of 60% S&P 500 Index (SPX) and 40% Vanguard Total Bond Index (BND) $70,000 1/1/1999 1/1/2000 1/1/2001 1/1/2002 1/1/2003 1/1/2004 1/1/2005 1/1/2006 1/1/2007 1/1/2008 1/1/2009 1/1/2010 1/1/2011 * Prior to 2002, EUSA was substituted for VTI for hypothetical returns, and IYR was substituted for VNQ Strategic Allocation and Money Market have identical returns since 12/31/1999 Can we be smarter about what we buy AND how we buy it?
A Few Practical Considerations Modern Portfolio Theory is predicated upon academic observations that clients don t often adhere to in reality For 12 years clients have received no return for any added risk with traditional strategic allocation MPT is hardly a means for separating one s self from other Financial Advisors. Strategic Allocation is free* on the internet. In the absence of value, the only consideration is price. * Wealthfront Advisors charges 0.25% to strategically manage any portfolios over 25k.
Repackaging the S&P 500 Based on Relative Strength RS Switching Strategy (RSP vs. SPY) Date Signal RSP SPY 12/31/1993-5/10/2000 O 124.00% 196.05% 5/10/2000-10/23/2008 X -0.79% -33.62% 10/23/2008-4/16/2009 O 1.50% -5.66% 4/16/2009-9/24/2012 X 86.56% 68.38% Buy and Hold SPY (12/31/1993-9/24/2012) Buy and Hold RSP (12/31/1993-9/24/2012) RS Switching Strategy 212.00% 320.00% 416.93% Using relative strength to determine whether to be Cap Weighted or Equal Weighted towards this index has resulted in an additional gain of nearly 100%!
The People s Portfolio (PEOPLEPORT) RSP vs. SPY vs. MNYMKT Year RSP SPY MNYMKT PEOPLESPORT Performance from 12/31/94 9/24/12 1995 28.93% 34.91% 5.54% 28.93% 1996 16.53% 22.37% 5.04% 15.90% 1997 26.74% 29.12% 5.08% 31.06% 1998 10.36% 26.67% 4.77% 26.63% 1999 10.20% 19.38% 4.64% 8.54% 2000 7.63% -10.68% 5.91% 0.45% 2001-1.85% -12.83% 3.33% -12.80% 2002-19.43% -22.80% 1.58% 1.58% 2003 38.89% 25.94% 0.98% 29.32% 2004 15.29% 8.68% 1.40% 15.22% 2005 6.26% 2.99% 3.01% 6.45% 2006 14.12% 13.80% 4.74% 14.02% 2007-0.34% 3.24% 4.36% -0.03% 2008-41.08% -38.28% 1.33% -14.04% 2009 42.19% 23.49% 0.21% 27.82% 2010 19.68% 12.48% 0.16% 19.81% 2011-2.18% -0.20% 0.05% -1.92% 2012 14.28% 16.06% 0.07% 14.31% Cumulative (1995-2012) 327.55% 219.67% 66.66% 531.15%
November 18 th 2011 DWA Daily Equity Report Feature Innovative approach for analyzing economic data to reveal important trend changes. 11
November 18 th 2011 DWA Daily Equity Report Feature Nov. 18 th 2011 Sep. 19 th 2012 ITB: + 83.38 % SPX: + 20.19 % Nov. 18 th 2011 Sep. 19 th 2012 XHB: + 60.48 % SPX: + 20.19 % 12
DWA Sector Relative Strength Matrix: 9/18/12 SPDR S&P Homebuilders ETF (XHB) 13
Using DWA to Filter ETFS ishares DJ US Technology Sector (IYW) vs. First Trust NASDAQ 100 Technology Sector (QTEC) Nov. 5th 2008 - March 14th 2012 QTEC 116.30% IYW 100.52% March 14th 2012 - Sept. 19th 2012 QTEC -5.72% IYW 2.07% 14
DWA Technology Relative Strength Matrix: 9/18/12 Using DWA to Filter ETFS 15
ishares Dow Jones US Healthcare (IYH) vs. SPDR S&P Pharmaceuticals (XPH) Nov. 6th 2008 - Sept. 20th 2012 IYH 63.11% XPH 126.77% 16
Identifying Leadership Among Asset Classes Using a top down approach to investing allows us to know what asset classes are currently in season. For Financial Professional Use Only. Not For Use With The Public.
Global Equity Update Since October 24 th, 2011 Equities have been the top-ranked asset class, with US equities specifically exhibiting leadership For Financial Professional Use Only. Not For Use With The Public.
Headlines Last Fall (August-October, 2011) According to a recent article in the LA Times, Lawrence Summers says there is a 33% likelihood of a double dip George Soros more recently said we are in it already. Source: Soros: US Is Already in Double-Dip Recession, www.cnbc.com For Financial Professional Use Only. Not For Use With The Public.
ETF Success = Mix & Match 20
Technical Leaders ETFs: A Growing Line-up Technical Leaders Family PowerShares DWA Technical Leaders (PDP): March 1 st 2007 PowerShares DWA Emerging Markets Technical Leaders (PIE): December 28 th 2007 PowerShares DWA Developed Markets Technical Leaders (PIZ): December 28 th 2007 PowerShares DWA Smallcap Technical Leaders (DWAS): July 19 th 2012 21 21
5 Years Later The PDP has outperformed all other quantitative based ETFs on a YTD and 5 Yr Roll basis, and has over $630 million in assets. Return Data thru 9/7/12 Inception Date 5 Yr Roll YTD PowerShares DWA Technical Leaders Index (PDP) 3/1/2007 11.12% 16.53% S&P 500 Index (SPX) 1/22/1993-1.47% 13.88% ishares Russell 1000 Index (IWB) 5/15/2000 0.15% 14.47% WisdomTree Total Earnings Fund (EXT) 2/23/2007 0.36% 11.38% Rydex S&P 500 Equal Weighted Index (RSP) 4/24/2003 7.96% 12.60% Russell 2000 High Momentum ETF (SHMO) 5/25/2011 6.87% 16.27% Russell 1000 High Momentum ETF (HMTM) 5/25/2011-5.67% 14.91% RevenueShares Large Cap ETF (RWL) 2/22/2008 1.19% 13.62% PowerShares S&P 500 High Beta Portfolio (SPHB) 5/5/2011-36.10% 8.74% PowerShares FTSE RAFI US 1000 Portfolio (PRF) 12/19/2005 3.76% 12.18% PowerShares Dynamic OTC Portfolio (PWO) 5/1/2003 5.36% 12.19% PowerShares Dynamic MagniQuant Portfolio (PIQ) 10/12/2006 0.38% 11.69% Flexshares Morningstar US Market Factor Tilt Index Fund (TILT) 9/22/2011 10.11% 14.40% First Trust Large Cap Core AlphaDEX Fund (FEX) 5/8/2007 6.04% 10.45% Data prior to the inception date are based upon the underlying index history 22
Apple Computer (AAPL) AAPL was added to the DWA Technical Leaders in the Dec 08 rebalance. 23 23
Combining PDP with Low Volatility PowerShares DWA Technical Leaders (PDP) and PowerShares S&P Low Volatility (SPLV) The symbol PDPSPLV is a 50 / 50 split between the PDP and SPLV, rebalanced once a year. 24
PowerShares DWA Technical Leaders (PDP) and PowerShares S&P Low Volatility (SPLV) Seasonally Adjusted (PDPSPLVSEAS) 09/07/07 09/09/12 SPX: - 1. 08% PDPSPLV: (50/50) + 16.75% PDPSPLVSEAS: + 32.37% 25
Be Your Own Architect Choose Your Bricks Bond Funds, Dividend Strategies & High Relative Strength, etc. Build Your Own Custom House Develop Your Investment Policy For Broker / Advisor Use Only. Not For Use With The Public. 26
MSCI EAFE Index : Primary Country Exposure 10% 5% - 10%
ishares International Model Dorsey, Wright ishares International Model Country Exposure Model Holdings: (20% each) ishares MSCI Mexico Index (EWW) ishares MSCI Thailand Index (THD) ishares MSCI Malaysia Index (EWM) ishares MSCI All Peru Capped Index (EPU) ishares DJ US Total Market Index (IYY) IYY E W W E P U T H D E W M ishares International Model (20% in each of 5 funds) Not in the Model
ishares International Rotation ETF Model Matrix ETF Matrix Function: Summation of big RS wrestling match between ishares International ETFs Focus buying on top quartile Hold position until RS deteriorates sufficiently 29
Listen to the Headlines about International Investing?. Or Pay Attention? 30
Cost Control Transparency Performance Marketing