ProShares has launched a new ETF providing exposure to a selection of Nasdaq 100 stocks that exhibit strong share price momentum and are identified as having the greatest potential to outperform.
Michael L. Sapir, CEO of ProShares.
The ProShares Nasdaq 100 Dorsey Wright Momentum ETF (QQQA US) has listed on Nasdaq and comes with an expense ratio of 0.58%.
The Nasdaq 100 – the fund’s security selection universe – consists of 100 of the largest US and international non-financial companies by market capitalization listed on Nasdaq, subject to various diversification requirements.
The index reflects companies across major industry groups including computer hardware and software, communications, retail/wholesale trade, and biotechnology.
The index is traditionally known for being ‘tech-heavy’ with roughly half of the index presently allocated to stocks formally defined as information technology companies and the majority of the remaining exposure dedicated to strongly tech-leaning companies in the communication services and consumer discretionary sectors, for example, Alphabet, Facebook, Amazon, Netflix.
Investors’ love affair with US large-cap tech exposure, especially in the aftermath of the Covid-19 market sell-off, helped drive the Nasdaq 100 to a 46.3% gain in 2020 while assets in the Invesco QQQ, the world’s largest Nasdaq 100 tracker, are up around $70 billion since the start of 2020 to $156 billion now.
That enthusiasm has pared back in recent months, however, as fears over a sustained jump in inflation have weighed on technology stocks which tend to derive the majority of their value from future earnings. The Nasdaq 100 is up just 4.9% year-to-date, while the Invesco QQQ has witnessed net redemptions of $2.3bn since the beginning of April.
This environment may suggest a more refined approach to the segment, such as that offered by the new ProShares ETF, is warranted. The strategy systematically invests only in those stocks that are currently benefitting the most from investor herding and aims to sell out of these positions when their momentum is waning.
Specifically, the fund tracks the Nasdaq 100 Dorsey Wright Momentum Index which harnesses investment advisory firm Dorsey, Wright & Associates’ expertise in relative strength investing. Dorsey Wright’s trademark relative strength strategy is currently used to power the investment decisions for over $11 billion in assets. Dorsey Wright is an affiliate of Nasdaq following its acquisition of the company in 2015.
Relative strength in this context compares the price performance, or momentum, between securities. According to Dorsey Wright, the absolute momentum of an individual security is not as important as the relative momentum between securities.
Dorsey Wright’s model determines whether momentum is increasing relative to another security and assigns a buy signal if it is. The securities are then ranked in descending order according to their cumulative number of buy signals.
The index identifies the 21 stocks from the Nasdaq 100 universe with the highest relative strength and equally weights them. Reconstitution and rebalancing occur on a quarterly basis.
The fund’s equally weighted approach avoids the significant tilts to the largest-cap companies as is the case with the regular Nasdaq 100 funds.
Michael L. Sapir, CEO of ProShares, said: “For years, the Nasdaq 100 has been a bellwether index for investing in innovative companies. ProShares is pleased to introduce the first Nasdaq 100 ETF using Dorsey Wright’s time-tested approach to identify stocks with the greatest potential to outperform.”