A New ETF That Screens For Momentum

Another exchange-traded fund that focuses on momentum debuted Tuesday, courtesy of ALPS and Dorsey, Wright & Associates. The ALPS Dorsey Wright Sector Momentum ETF SWIN emphasizes sector and individual equity momentum.

The new ETF tracks the Dorsey Wright US Sector Momentum Index. That benchmark is comprised of stocks from the Nasdaq Large/Mid Cap Index. As ALPS noted, SWIN's screening process starts at the macro by analyzing 10 sectors, excluding real estate.

Moving On Momentum

The top three sectors with the best momentum scores receive allocations of 20 percent apiece with 10 stocks weighted at two percent each hailing from those sectors. The next four sectors with the highest momentum are rated at 10 percent each with five stocks coming from each of those sectors. Those stocks also receive allocations of 2 percent each.

The three sectors with the lowest momentum ratings are excluded from SWIN.

“Equally weighting at the stock level and imposing sector constraints provides diversification while maintaining high conviction momentum exposure,” according to ALPS.

The technology and industrial sectors each garner weights of 20 percent in SWIN while consumer discretionary is just under 20 percent. Healthcare, financial services, energy and materials are the sector commanding weights of or about 10 percent. Consumer staples, telecom and utilities are the sectors currently not represented in SWIN.

Investing Strategy

“Relative strength is an investing strategy that seeks to determine the strongest performing securities by measuring its performance against the overall market or a security’s relative strength value. Nasdaq, Inc. (the ‘Index Provider’) uses a proprietary methodology to analyze the relative strength of each security within the universe of eligible securities and determine a “momentum” score,” according to ALPS.

“SWIN utilizes Dorsey Wright’s proprietary Point and Figure Relative Strength charting to craft a high conviction portfolio of 50 stocks. The momentum strategy is similar to buying high flyers and betting on even higher moves,” noted ETF Trends.

Familiar names in SWIN include Facebook Inc FB and Amazon.com, Inc. AMZN. The new ETF charges 0.4 percent per year, or $40 on a $10,000 investment.