A new exchange-traded fund from PowerShares and Dorsey Wright & Associates promises to be truly technical, tracking 100 stocks on peer-performance and patterns, rather than executive interviews and financial statements, according to MarketWatch."When people hear technical analysis, they think of black magic or something," Tom Dorsey, the Richmond, Va.-based firm's president, said. "But our method is really about measuring supply and demand in the marketplace and quantifying those trends. Our process is very long-term in nature."
If the ETF had been open from 2001, its method would have beaten the S&P 500 8.76% per year on average between 2001 and 2006. Expenses have been capped at 0.60%, and are rebalanced quarterly.
"It's another in the line of ETFs to take a known active strategy and put it into the form of a quantitative index to capture most of that process," Jim Wiandt, editor of the Journal of Indexes, said. "It's a trend that's driving the industry."
Dorsey said the fund is not highly correlated to the overall market, and will perform best when markets are either clearly rising or falling, but do little in a stagnant market. "It's a tool to use in a well-diversified portfolio to manage trends. This isn't designed as a one-stop type of fund," Dorsey said.
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