With the current crypto craze still roaring and meme stocks seemingly dominating the market’s attention, some investors may be looking for more stable investments. That said, one solid option that provides diversity to your portfolio is the world of exchange-traded funds (ETFs). And a new ETF that recently hit Wall Street is the ProShares Nasdaq-100 Dorsey Wright Momentum ETF (NASDAQ:QQQA).
The fund is extremely unique as it is “the first ETF focusing on select Nasdaq-100 stocks identified as having the greatest potential to outperform.” QQQA became available to investors in mid-May, and is up nearly 2% already. Some of the ETF’s top holdings include IDEXX Laboratories (NASDAQ:IDXX), The Kraft Heinz Company (NASDAQ:KHC) and Alphabet (NASDAQ:GOOGL).
Moreover, the ProShares Nasdaq-100 Dorsey Wright Momentum ETF focuses on a few main aspects of investing: momentum and Relative Strength. With that in mind, these two factors — combined with the fund’s equal-weight construction — make for a solid pick for anyone looking for diversity.
So, why should investors be interested in QQQA? I discussed the fund with Simeon Hyman with ProShares. And in this conversation, Hyman explains why you should consider adding QQQA to your investment portfolio.
InvestorPlace: The ProShares Nasdaq-100 Dorsey Wright Momentum ETF kicked off on May 18. Can you tell us little bit more about the fund and why it was launched?
ProShares: QQQA is the first ETF focusing on the select Nasdaq 100 stocks identified as having the greatest potential to outperform. The combination of the Nasdaq 100 and momentum — a bellwether for innovative companies and a time-tested investment strategy used to seek outperformance — is an opportunity we’re excited to provide investors.
InvestorPlace: What is Dorsey Wright? Why is it important to the fund?
ProShares: Dorsey Wright was founded in 1987 and is well-known for their “Point and Figure” approach, which is a logical and organized way for practitioners to apply the momentum factor. A proven leader in momentum investing, there are over $10B in assets driven by Dorsey Wright and its research platform is used by financial professionals and portfolio managers worldwide.
InvestorPlace: The fund tracks the Nasdaq-100 Dorsey Wright Momentum Index. What is that, and why was it chosen?
ProShares: The index consists of 21 securities from the Nasdaq-100 with the highest price momentum, ranked by Dorsey Wright’s “Relative Strength” momentum measure. The securities are equally-weighted at reconstitution, which occurs quarterly. This is the first ETF to apply momentum to the Nasdaq-100. The index combines a bellwether for innovative companies with a selection approach from a recognized leader in momentum investing.
InvestorPlace: The fund focuses on investing through “momentum.” What is momentum investing? Why is it valuable for investors?
ProShares: Momentum is the observation that winning securities continue to outperform in the near-term and is one of the most well documented factors, or styles, in finance. It has displayed a long history of outperformance throughout the previous several decades in the S&P 500 Index and Russell 1000.
InvestorPlace: What is Relative Strength? What makes it important in terms of investing?
ProShares: Dorsey Wright’s Relative Strength signal is a technique for identifying stocks with positive momentum, providing the opportunity to turn theory into practice.
InvestorPlace: What are some of the pros and cons to investing in momentum and/or Relative Strength?
ProShares: The outperformance of momentum has been quite consistent over time, but one of its challenges is that applying the momentum screen to a broad universe of stocks can result in portfolios somewhat frequently changing characteristics. By applying momentum to the Nasdaq 100 and rebalancing quarterly, the resultant portfolio remains squarely in the large cap growth camp and limits turnover, while still providing the opportunity to take advantage of the momentum signal.
InvestorPlace: In terms of what sector the fund’s holdings belong to, 50% of them fall in the information technology (IT) area. What makes this sector so valuable?
ProShares: The IT sector lies at the heart of innovation. But today innovation and technology are key drivers for just about every company. In fact, many of the Nasdaq 100 companies that are in the communication services and consumer discretionary sectors, the 2nd and 3rd largest sectors, may strike most investors as driven by technological innovation. The momentum factor can enhance the investment opportunity driven by innovation and drive further outperformance.
InvestorPlace: Is there anything else about the fund that you think investors would be interested to know?
ProShares: Investors should not overlook the importance of the equal-weight construction. The top-heavy nature of the Nasdaq-100 and the market in general is a risk factor. QQQA’s equal-weight approach emphasizes the momentum signal and positions it well for maintaining an innovation-focused equity allocation in a reopening and recovering world.
On the date of publication, Nick Clarkson did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nick Clarkson is a web editor at InvestorPlace.
In The InvestorPlace Q&A, we invite a manager to speak directly to Main Street investors, whether discussing their firm’s technologies, strategies or investments for the year ahead. Our goal is to put the spotlight on fund managers and other institutional investors of note, providing a detailed look into their management styles, world views and investing strategies. Read past interviews here.