First Trust Dorsey Wright Momentum & Value ETF (DVLU) seeks to track the Dorsey Wright Momentum Plus Low Volatility Index, which combines momentum screening with value metrics to identify undervalued stocks showing positive price trends. This dual-factor equity ETF targets U.S. companies exhibiting both technical momentum signals and attractive fundamental valuations.
How It Works
DVLU uses a rules-based methodology that first screens the universe of U.S. stocks for momentum characteristics using Dorsey Wright's relative strength rankings, then applies value filters including price-to-earnings, price-to-book, and price-to-sales ratios. The fund equally weights selected holdings and rebalances quarterly to maintain factor exposures. This active index approach typically holds 50-100 stocks, creating concentrated exposure to companies passing both momentum and value screens simultaneously.
Key Features
- Combines momentum and value factors in single ETF, addressing the challenge of timing factor rotations between growth and value cycles
- Uses Dorsey Wright's proprietary relative strength methodology, a technical analysis approach with decades of institutional track record
- Equal weighting prevents mega-cap dominance, giving smaller value opportunities same portfolio impact as large-cap momentum leaders
Risks
- This ETF can lose value when momentum strategies reverse sharply, as winning stocks often become losers during market rotations, potentially declining 20-30%
- Factor timing risk exists when value and momentum work against each other, creating internal conflicts that may underperform single-factor approaches
- Concentrated portfolio of 50-100 stocks increases individual company risk compared to broad market ETFs, amplifying volatility during sector rotations
Who Should Own This
Best suited as a satellite holding (10-20% of equity allocation) for tactical investors with 3-5 year time horizons seeking factor diversification beyond traditional growth or value ETFs. Medium-to-high risk tolerance required due to factor rotation volatility. Appeals to investors wanting systematic momentum and value exposure without timing factor cycles manually.