PowerShares Momentum Tracker is published by Fidelity Independent Adviser.
In the last three months, PJB’s market return has outperformed the S&P 500 by more than 28 percent. In the last month alone, as Lehman collapsed and Goldman and Morgan Stanley transformed into bank holding companies, PJB’s market return outperformed the S&P 500 by 15.38 percent. This performance pushed PJB up the PowerShares Momentum Tracker ratings, from the No. 60 position on July 16 to the top position overall on September 30.
“PJB has stuck to its guns,” said publisher Don Dion, “choosing higher quality large-cap banks and small-cap banks that can be rebalanced aggressively.” PJB tracks the Dynamic Banking Intellidex Index, which evaluates banking equities based on fundamental growth, stock valuation, investment timeliness and risk factors. Using these factors, the Dynamic Banking Index selects “best of breed” banks for inclusion in the portfolio.
While an examination of PJB’s top ten components reveals many of the usual suspects—Wells Fargo, JPMorgan Chase, U.S. Bancorp and Sun Trust—other, smaller banks have helped PJB to weather the financial crisis better than the sector as a whole. More than 50 percent of PJB’s components are classified by PowerShares as small cap. “The tempest stirred up by mortgage practices has dealt a blow across the banking sector,” noted Dion, “but PJB’s concentration in small cap value has spared this fund some of the pain suffered by the larger banks in the headlines.”
PowerShares Momentum Tracker credits much of PJB’s success to timely changes made in the underlying index. PJB changed the composition of its portfolio in March, June and September of 2008, allowing fund managers to remove poorly performing banks and reallocate assets to banks that were performing relatively better when measured by the fund’s investment criteria. In March, the landscape of PJB’s portfolio was dramatically altered as 13 component changes were made to the portfolio. In this wave of alterations, PJB removed Bank of America, KeyBank and Zions Bancorporation, among others—adjustments that would prove to be beneficial to investors in the months to come. Notable June changes included the addition of First Financial Bancorp and the removal of Wells Fargo—a move that would be reversed come September. In addition to adding Wells Fargo back into the mix this past month, PJB also welcomed BB&T and Provident New York—two small banks that have thrived in recent conditions.
“During a year of constantly changing banking industry news, these shifts have been responsible for the noteworthy performance of the fund,” said Dion. In relatively calm quarters, ETFs may only slightly adjust portfolio holdings—if at all—but PJB’s massive portfolio overhauls in March, June and September illustrate the changes going on in the sector as a whole.
PowerShares Momentum Tracker is a member of Fidelity Independent Adviser’s family of financial publications. With more than 70,000 subscribers in the United States and 29 other countries, Fidelity Independent Adviser publishes four monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.
Publisher Don Dion is also president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Massachusetts, Dion Money Management manages assets for clients in 49 states and 11 countries. A licensed attorney in Massachusetts and Maine, Mr. Dion has more than 25 years’ experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.