Invesco DWA SmallCap Momentum ETF (DWAS)

Strong returns in U.S. stocks, particularly over the past two plus years, have led investors to question the relative lack of companies going public via the IPO process — as well as the potential implications for the IPO market in the long term. According to active equity managers, a combination of increased public market regulation, a reduced pipeline of potential offerings following the prior boom, the rising role of large private asset managers in capital raising, and near-term uncertainty surrounding government policy are all contributing factors. At Russell Investments, we think investors benefit from taking a long-term view.

The Invesco Dorsey Wright SmallCap Momentum ETF has a strong growth profile but has underperformed other small-cap momentum funds like XSMO and USVM since 2021. DWAS focuses on U.S. small-cap companies with strong relative performance, heavily weighted towards industrials and technology sectors, and has a high turnover rate. Despite outperforming the Russell 2000 index over time, DWAS has higher volatility, lower liquidity, and higher expense ratios compared to peer funds.

XSMO: Outperforming For A Few Years, Unconvincing In The Long Run

The new year is poised for a resurgence in tech IPOs, as lower interest rates and an investor shift to small- and mid-cap companies combine to create a more welcoming market for debuts. The current environment presents the most favorable conditions for the recovery of IPOs in the past three years. The S&P 400 Midcap Index and the S&P 600 Index have outperformed the S&P 500 Index since the US election Nov. 5.

DWAS offers exposure to small- and mid-cap names with convincing momentum characteristics. Yet, its strategy of capitalizing on SMID stocks that were on a tear did not translate into meaningful and consistent outperformance in the past. Its historical risk-adjusted returns are much weaker than those of IVV and IJR, owing to its volatility, which, in turn, is likely influenced by soft quality.

Rate cuts are coming, it seems, with the U.S. economy slowing down precipitously in July. Market watchers are increasingly seeing a potential 50 basis point (bps) cut in September with potentially even more cuts after that.

Invesco Dorsey Wright SmallCap Momentum ETF holds 199 small caps selected and weighted based on a proprietary momentum score. The DWAS ETF is overweight in industrials and healthcare, but well-diversified across holdings. Based on quality metrics and price history, DWAS has a high-risk/high-reward profile.

DWAS has an index-based strategy designed to benefit from strongly performing small-cap stocks that are anticipated to continue climbing higher. I have identified two reasons why the ETF is a suboptimal choice: the soft quality of its portfolio and its inconsistent past performance. A pronounced mid-cap tilt might be another issue for investors who are looking for pure-play small-cap portfolios.

A total of nine funds launched during the week ending Sept. 1, thus a dip after the 17 ETF launches last week but not unusual in the leadup to a holiday weekend.

Hello! This is MarketWatch reporter Isabel Wang bringing you this week's ETF Wrap. In this week's edition, we look at flows into U.S. exchange-traded funds in July which recorded their second-best month of 2023 as stock market's rally gained steam and widened beyond the first-half winners.

With the U.S. economy witnessing upbeat economic datapoints and Q2 earnings season unfolding in a decent manner, Wall Street is likely to continue its run ahead.

Momentum investing is an investment strategy that aims to capitalize on the continuance of an existing market trend.

Momentum investing would be a winning strategy in the current market environment for those seeking higher returns in a short spell.

IEF and DWAS saw massive trading volumes in yesterday session.

Momentum investors should consider this AI-powered ETF that's easily outpaced its peers following the March 2020 crash.

Momentum investing would be a winning strategy for those seeking higher returns in a short spell.