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High RS Newsletter

May 2, 2011 Issue 98


Devoted to information and portfolio strategies for the high relative strength asset class

Relative Strength measures


the price performance of a stock versus a market average or universe of stocks. A stocks relative strength can improve if it rises more than the market in an uptrend, or goes down less than the market in a downtrend.

High RS Asset Class


High RS stocks, as an asset class, often move independently of broad indexes. Recent performance through 4/28/2011:

Whats Hot...And Not


How different investments have done over the past 12 months, 6 months, and month.

High RS Index is a proprietary Dorsey, Wright Index composed of stocks that meet a high level of relative strength. The volatility of this index may be different than any product managed by Dorsey, Wright. The High RS Index does not represent the results of actual trading. Clients may have investment results different than the results portrayed in this index.

Sector & Capitalization Snapshot


As of 4/28/2011

PowerShares DB Gold, 2iShares MSCI Emerging Markets ETF, 3iShares DJ U.S. Real Estate Index, 4iShares S&P Europe 350 Index, 5Green Haven Continuous Commodity Index, 6iBoxx High Yield Corporate Bond Fund, 7JP Morgan Emerging Markets Bond Fund, 8PowerShares DB US Dollar Index, 9iBoxx Investment Grade Corporate Bond Fund, 10PowerShares DB Oil, 11iShares Barclays 20+ Year Treasury Bond

Never before has it been easier for investors to invest in the strongest trends wherever they might be found in the world. Relative strength offers an ideal framework for allocating among those trends. Markets are global and your portfolio should be too.

High RS Diffusion Index


As of 4/28/2011
High RS Diffusion Index 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Aug-08 Aug-09 Aug-10 Apr-08 Apr-09 Apr-10 Feb-09 Feb-10 Dec-08 Dec-09 Dec-10 Feb-11 Mar-11 Jun-08 Jun-09 Jun-10 Apr-11 Oct-08 Oct-09 Oct-10 Nov-10

High RS Stocks Above 50 Day Moving Average

10 Day MA

The vast majority of high relative strength stocks continue to trend higher. The 10-day moving average is 73% and the one-day reading is 78%.

RS Spread
The chart below is the spread between the relative strength leaders and relative strength laggards (universe of mid and large cap stocks). When the chart is rising, relative strength leaders are performing better than relative strength laggards. As of 4/28/2011:
Relative Strength Spread 8 7 6 5 4 3 2 May-09 Sep-08 Sep-09 May-10 Nov-08 Mar-09 Nov-09 Mar-10 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Sep-10 Jan-11

RS Spread

50 Day Moving Average

Although high relative strength stocks have pulled away from the broad market over the past year and a half, they have yet to break away from the performance of the bottom quartile of RS stocks.

PDP: Case Study in Adaptability


The goal of any relative strength strategy is to have exposure to those securities in the investment universe that are performing relatively well while seeking to minimize exposure to those that are performing relatively poorly. Our first Technical Leaders Portfolios to begin trading is PDP, which is an index of 100 high relative strength securities. This ETF began trading on March 1, 2007 and we are pleased that it has outperformed the S&P 500 since inception. To illustrate this ETF's ability to adapt and overweight strong areas of the market, see the chart below which shows the percentage of the index that has been allocated to Industrials (one of the stronger sectors over the last couple of years) and the percentage allocated to Financials (one of the weaker sectors over the last couple of years).

As shown in the table below, there has been large dispersion in performance between Industrials and Financials over this period of time.

IYJ is used as a proxy for Industrials and IYF is used as a proxy for Financials.

PDP: Case Study in Adaptability


At some point in the future, there will be another group that rises to the top and PDP will then seek to adapt to those changes. By the way, ETFdb reports that PDP is the 3rd best performing quant-based ETF year-to-date, as well as the largest.

See www.powershares.com for more information about PDP.

Fund Flows
The Investment Company Institute is the national association of U.S. investment companies, including mutual funds, closed-end funds, exchange-traded funds (ETFs), and unit investment trusts (UITs). The table below is ranked in descending order based on flows for the week ending

Media Center
Powershares DWA Technical Leaders ETFs (PDP, PIE, and PIZ)

Closer Look At Quant-Based ETFs, Business Insider, Apr 21, 2011 Is Your Index Fund Broken?, Jan 31, 2011

Arrow DWA Balanced Fund (DWAFX)


Banner Year For DWAFX, Dec 30, 2010 What is a Balanced Fund, and Why Should You Care?, Nov 15, 2010

Arrow DWA Tactical Fund (DWTFX) Investors must have serious fears of municipal bond defaults as they continue to pull money out of that asset class. The other asset classes all had strong flows, led again by taxable bond funds.

DWTFX: Best of Class, Mar 29, 2011 The All-in-One Fund With a Twist, Jun 16, 2010

Dorsey Wright Money Management

Other RS Sources
Relative Strength investing has a long history of well-documented testing. Some of the best known resources in the area are: Brush, John S. Eight Relative Strength Models Compared. Journal of Portfolio Management (1986). Berger, Israel, Moskowitz. The Case for Momentum Investing. AQR Capital Management. 2009. Jegadeesh and Titman. Returns to Buying Winners and Selling Losers. Journal of Finance (1993). OShaughnessy, James P. What Works on Wall Street. McGraw Hill, 1997.

Bringing Real-World Testing To Relative Strength, Jan 2011 Relative Strength and Asset Class Rotation, Feb 2011

Blog
Visit (and bookmark!) our blog at www.systematicrelativestrength.com

To Request Info
To request information about our Systematic Relative Strength accounts, please call us at 626-535-0630, or e-mail us at moneymanagement@dorseywright.com or click here.

Dorsey, Wright Money Management 595 E. Colorado Blvd, Suite 518 Pasadena, CA 91101 (626) 535-0630
Information contained herein is based on data obtained from publicly available statistical services, issuer reports or communications, or other sources believed to be reliable. However, such information has not been verified by Dorsey, Wright and Associates, Inc. (DWA) and DWA makes no representations or warranties as to the accuracy of the source data. Recommendations made are based on the professional judgment of DWA, and DWA cannot guarantee the results. The data reflects information as of the date DWA purchased this security for client portfolios and is not for purposes of assisting any person in making his/her own decision as to which security to buy or sell, or when to buy or sell them. Charts, graphs, or formulas published by DWA have limitations in determining future profitability. All investments have risks and there is no guarantee against loss. DWA may sell this position at any time without further notice.

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