DWAS: High-Risk/High-Reward Small-Cap ETF (NASDAQ:DWAS)

DWAS strategy

Invesco Dorsey Right Small Cap Momentum ETF (Nasdaq: Dawas) began investment operations on 07/19/2012 and tracks the Dorsey Wright® SmallCap Technical Leaders Index. It has 199 holdings, a 12-month distribution yield of 1.34% and an expense ratio of 0.60%.

As described in the prospectus by Invesco, the underlying index

“It consists of approximately 200 securities from an eligible universe of approximately 2,000 securities ranked from 1,001 to 3,000 by market cap within the NASDAQ US Benchmark Index™.“

Eligible stocks are ranked based on a momentum score calculated from “The medium- and long-term upward price movements of a security compared to a representative benchmark index.About 200 stocks in the index are selected and weighted based on their momentum scores. Details about the methodology and calculation of the momentum score have not been revealed. Fund turnover in the latest The fiscal year was 181%. By definition of the eligible stock universe, this article will use as its benchmark the Russell 2000 index, represented by the iShares Russell 2000 ETF (IWM).

DWAS wallet

The portfolio is invested almost exclusively in US companies (98% of asset value). The heaviest sectors are industrials (27.3%) and healthcare (25.4%), followed by financials (13%) and consumer discretionary (12.2%). Other sectors have a weight of no more than 7%. Compared to the benchmark index, DWAS overweights the two sectors mentioned above and underweights mostly technology, consumer goods and real estate. He ignores the escort.

The fund is well diversified. The 10 largest properties, listed in the following table in basic proportions, represent 14.9% of the asset value. All positions are less than 2%, so the risk to individual companies is low.

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The basics

DWAS significantly outperforms the benchmark in terms of earnings growth rates and cash flow growth, as shown in the following table. It’s also cheaper based on its price-to-earnings ratio, which is unusual for a momentum fund. However, other valuation ratios are higher.

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Data source: Fidelity.

In my reviews of ETFs, risky stocks are companies that have at least two red flags among: a bad Piotrowski score, a negative ROA, an unsustainable payout ratio, and a bad or questionable Altman Z-score, with the exception of financials and real estate where it is unreliable. These metrics. With this assumption, the risky stock weighs 40% of the asset value, which is a very bad point. In addition, according to my calculations of the overall quality metrics (listed in the following table), the ROA is negative and below the benchmark. The Piotroski F score is a bit higher, but below the threshold I consider “good” (which is 6). These numbers are typical of a high-risk, sub-par quality portfolio.

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performance

Since 8/1/2012, DWAS has outperformed the Russell 2000 by 1.8% in annualized return, as noted below. Risk is measured by the maximum drawdown and standard deviation of monthly returns (“volatility”) above the index.

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DWAS outperformed IWM by 2.9% over the past 12 months:

DWAS vs. competitors

DWAS is rated in the “Small Growth” category by Fidelity and Morningstar. The following table compares the characteristics of DWAS and five small-cap ETFs that implement momentum or growth strategies:

• Invesco S&P Small Cap Momentum ETF (XSMO)
• iShares S&P Small-Cap 600 Growth ETF (IJT)
• Vanguard Russell 2000 Growth ETF (VTWG)
• iShares Morningstar Small-Cap Growth ETF (ISCG)
• First Trust AlphaDEX Small Business Growth Fund (FYC).

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DWAS has the highest turnover on this list, and its fees are the second most expensive. The following chart plots total returns since 07/23/2012. DWAS is the second best performer, behind XSMO and shortly before IJT.

Over the past 12 months, DWAS trails XSMO by more than 16% and is almost tied with IJT again:

He stays away

The Invesco Dorsey Wright SmallCap Momentum ETF has 199 small cap companies selected and weighted based on their Momentum Score. DWAS is overweight in industrials and healthcare, but is well diversified across holdings. Based on quality metrics and price history, DWAS has a high-risk/high-reward profile. It has outperformed the Russell 2000 and small-cap ETFs since its inception. However, it lagged behind XSMO, another small-cap momentum fund by the same source.