The PowerShares DWA Technical Leaders Portfolio (PDP) was recently highlighted by SeekingAlpha.com in an article titled, "Under the Microscope: PowerShares DWA Technical Leaders Portfolio ETF" by Eric Dutram. The article discusses how the ETF is systematically managed using relative strength as the principle input, but did so in a manner that can be useful for explaining the concepts to clients and prospects. The article doesn't go into great depth, but accurately states that, "relative strength focuses on the idea that stocks showing high relative strength compared to broader indexes are likely to continue increasing in price, and it is better to buy those stocks than to buy stocks with falling prices."

The article didn't discuss the other members of the Dorsey Wright & Associates (DWA) Technical Leaders Family, however, and the increasing interest in International Equities provides a timely opportunity to do so. The technical leaders indexing strategy is applied in a similar manner across different segments of the Global Equity markets. For instance, the PowerShares DWA Technical Leaders Fund (PDP) begins with a universe of about 1,500 domestic equity securities and after applying our relative strength screening process a portfolio of 100 High Relative Strength (RS) positions results. The portfolio is re-evaluated each quarter with changes being made as necessary at that time.

The same screening process is applied to two International Equity universes, the International Developed Markets, and the ETF that replicates this process is the PowerShares DWA Developed Markets Portfolio (PIZ) while the PowerShares DWA Emerging Markets Portfolio (PIE) replicates the relative strength screening process in across the International Emerging Markets. PIZ invests in markets accessing economies that are considered to be "developed," such as Canada, Western Europe, Australia and Japan. PIE invests in lesser-developed markets, including many of the Pacific Rim economies, Latin America as well as Turkey and Russia. The evaluation process is the same for any Technical Leaders Funds, it is the universe that differs.

Because the portfolios for PIE and PIZ are directed by means of relative strength screening, as opposed to global market capitalization weighting, like the MSCI EAFE Index which is the most widely followed International Equity benchmark, the portfolios will provide a very different complexion than their benchmarks when the performance trends have not favored the larger more developed economies. For instance, over the past few quarters it has been Western Europe that has lagged rather consistently. European currencies have faltered, the debt crisis in Greece has weighed heavily on the region, but even before that was brought to light we had seen the traditional safe havens abroad provide sub-par performance relative to other global markets. For instance back in June of 2009 our relative strength work showed the following markets as having the worst relative strength: United Kingdom, Belgium, Netherlands, and Italy. Fast forward to today, and the remains the case as much of Western Europe and Japan continues to be among the weakest areas to invest. The technical leaders indexing process is designed to adapt to this, most International indexes are not. The inherent flaw in most International indexes is they are weighted on market capitalization, meaning the biggest countries or economies receive the greatest weighting in the portfolio. This means that much of Western Europe and Japan generally account for a very significant weighting in most broad based International equity indexes. The resulting Technical Leaders portfolios can thus have a very different profile than their benchmarks ... as is the case today.

On the image below, we show the top 10 country weightings for the common International equity benchmarks for the Developed Market (EFA) and the Emerging Markets (EEM). Along side each you will see the top 10 country weightings of the Developed Technical Leaders ETF (PIZ) and the Emerging Technical Leaders ETF (PIE).

This country rotation within the technical leaders portfolios allows for a tactical element within the International Equity space. The technical pictures for both International Technical Leaders portfolios is generally positive and the performance relative to their benchmarks has been strong over the past quarter and rolling 12-mo. window. PIE has outperformed EEM by about 7.5% over the past year, while PIZ has gained 11.6% over EFA during the same period. Obviously past performance is not necessarily indicative of future results, but the current country allocations within these funds lines up nicely with what we see in terms of the relative strength leaders. Even so far in 2010, through April 8th, all three Technical Leaders ETFs have managed to show a notable amount of outperformance. The PDP (domestic stocks) is outperforming the S&P 500 by more than 6%, the PIE is outperforming by 3.77%, and the PIZ is outperforming by more than 5% in a roughly three month time period. So, as you look to gain exposure to the International Equity market, or the domestic equity market for that matter, be sure not to overlook the Technical Leaders lineup of the ETFs in lieu of simply buying an outdated, market capitalization weighted index.