First Trust Dorsey Wright Momentum & Low Volatility ETF (DVOL) seeks to track an index that combines momentum and low volatility strategies by selecting U.S. stocks showing strong price momentum while maintaining lower volatility characteristics. This dual-factor approach targets companies with rising stock prices and stable price movements.
How It Works
DVOL uses a rules-based methodology that screens the universe of U.S. stocks for momentum signals using relative strength rankings, then applies a secondary filter for low volatility characteristics. The fund employs equal weighting among selected holdings and rebalances quarterly to maintain exposure to stocks meeting both momentum and low volatility criteria. Holdings typically range from 100-200 stocks across various market capitalizations and sectors.
Key Features
- Combines two popular factor strategies—momentum and low volatility—in a single ETF for diversified factor exposure
- Uses Dorsey Wright's proprietary relative strength methodology to identify stocks with sustained upward price trends
- Equal weighting approach prevents concentration risk and provides balanced exposure across all selected momentum stocks
Risks
- This ETF can lose value when momentum stocks reverse direction, as rising stocks often fall sharply during market corrections or style rotations
- Factor timing risk exists as momentum and low volatility strategies can underperform for extended periods, particularly in sideways markets
- Quarterly rebalancing may create tax inefficiencies and transaction costs that could drag on performance during volatile market conditions
Who Should Own This
Best suited as a satellite holding (10-20% of equity allocation) for tactical investors with 1-3 year time horizons seeking factor-based exposure. Medium-to-high risk tolerance required due to momentum strategy volatility. Appropriate for investors who believe in factor investing but want diversification across multiple factors.