Index In Focus: Dorsey Wright Focus Five Index
The Dorsey Wright Focus Five Index launched in February 2014 and over the past year has outperformed the US markets by 13% on a price return basis. The Focus Five methodology is rooted in selecting the five highest ranked sector ETFs from First Trust’s ETF line-up based on the Dorsey Wright proprietary relative strength model. Relative strength is a momentum technique that relies on unbiased, unemotional and objective data, rather than biased forecasting and subjective research.
At its core, Focus Five is the embodiment of a sector rotation strategy and offers a broad market experience but enhances returns by only tracking the best performing sectors on a relative strength basis. Currently the sector rotation strategy is in Biotechnology, Internet, Consumer Staples, Health Care, and Consumer Discretion. It is clear that the market leader sectors are those focused on the individual – between consumer sectors and health care – and the individual has been a driving force on the market’s returns.
Focus Five has also generated this outperformance without generating significantly higher volatility than the broad market. The information ratio is a high 0.75 and the risk-adjusted return is significantly higher than the broad market.
March 2014 marked the one-year anniversary for the associated ETF, the First Trust Dorsey Wright Focus 5 ETF (FV).
Which five ETFs do you think should come into focus next?
*Source: Nasdaq as of May 8, 2015
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