Momentum Strategies have had quite a strong year, particularly on the international front. Today we discuss how you can take advantage of said strength within your portfolio.
The last 15 years (minus a few hiccups here or there) have been dominated by United States equities. Attempts to pick up international exposure were largely unfruitful as US markets stormed forwards after brief stints of underperformance. International equity rallies were ultimately short lived… leaving with it a bad taste in investors mouths as trend followers got burned. All that said, 2025’s campaign is putting the markings together of something a tad bit different. ACWX is up over 22% this year, more than double that of the S&P 500. This marks the widest outperformance calendar year spread (through 9/10) since 2009, and one of now 12 years (of a possible 38) of international outperformance through nearly three quarters of the year. While 2009’s campaign ultimately saw ACWX underperform the S&P 500 for the rest of the year… a change in performance leadership for the rest of the year seems to be more of an exception than a rule. In fact, nearly 73% of the time (27 of 37) ACWX has continued to out/underperform after doing so through September 10th of a given year.
This is music to our ears for us trend followers. Consistent leadership can be a major tailwind for momentum focused strategies. While domestic leadership has been mostly consistent so far this year, it has been more evident on the international front. At first, developed markets were standouts as Europe has flexed its muscles at the top of NDW’s relative rankings (and still does…), but more recently emerging markets have perked up as China continues to advance. To gauge how strong these leaders are, Dorsey Wright typically uses a relative strength spread which pits a basket of winners against a basket of losers. The higher (wider) this spread is, the more constructive an environment. You can track this on the domestic front with ticker RSSPREAD on the NDW platform, but we included the international calculations below for you. The graphs depict largely the commentary mentioned previously: a consistent picture for developed markets and a improving picture for emerging.
Knowing a spread exists is one thing, taking advantage of it within a portfolio is another. To do so tactically, you could look towards a handful of NDW products. PIE & PIZ let you garner exposure to high relative strength names on the international front (emerging and developed markets, respectively.) Both have strong fund scores based on NDW’s fund score methodology (4.64 & 5.44 as of 9/11). While swift upside action for PIE leaves it in heavily overbought territory at the time of this writing, the technical picture has improved quite notably over the course of the last month and interested parties could look to pullbacks towards old resistance in the low $20’s. For those not interested in adding further emerging market exposure while China/east Asia is at the helm, PIZ offers exposure to high momentum names across more international developed markets. With exposure littered across Europe (and a ~20% allocation to Canada), PIZ offers a different flavor of international exposure and remains tactical to adjust as trends shift. Both funds are up 25%+ so far this year (through 9/10) and out outperforming their respective emerging/developed market representative.
For those of you who don’t want to make a call on any one specific area of the globe but still want to remain tactical in your approach, you could look towards the likes of IFV or AADR. Both funds utilize the Dorsey Wright methodology to tactically rotate around the globe, picking technically strong ADRs (AADR) or a select five international funds (IFV) based on their long-term relative strength. Both funds have a strong fund score and have put together equally as impressive performance campaigns so far in 2025.
While it is too early to call if we are entering some sort of extended period of international leadership, finding ways to take advantage of other broad asset classes strength as it emerges can be a key to driving value for your clients. As always, continue to watch the charts and set alerts to find proper entry points.
This article is intended only for financial professional use only. Not Intended for retail investors.
Click here for more information from Invesco on the Invesco Dorsey Wright Developed Markets Momentum ETF: https://www.invesco.com/us/financial-products/etfs/product-detail?audienceType=Investor&ticker=PIZ
Click here for more information from Invesco on the Invesco Dorsey Wright Emerging Markets Momentum ETF: https://www.invesco.com/us/financial-products/etfs/product-detail?audienceType=investor&ticker=pie
Click here for more information from Advisroshares on the DORSEY WRIGHT ADR ETF: https://advisorshares.com/etfs/aadr/
Click here for more information from First Trust on the First Trust Dorsey Wright International Focus 5 ETF: ftportfolios.com/Retail/Etf/EtfHoldings.aspx?Ticker=IFV
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