To tamp down all the talks of a global recession, one thing that could certainly help is a positive outcome with respect to a U.S.-China trade deal. While it may seem that an ironclad deal that’s agreeable to both sides is the preferred situation, a home run isn’t exactly necessary.
According to Tony James, Blackstone’s executive vice-chairman, even a smaller trade deal could help lift languishing business confidence. In fact, further discussions to try and iron out the perfect deal could actually hurt more than help.
“I wouldn’t underestimate the importance of getting the easy items agreed,” James said at the Singapore Summit.
“More importantly, though, if there’s no trade deal, there’s no basis for continuing the discussion between the countries, there’s no commonality of interests. And I worry at that point it could spiral out of control to become much more hostile, much more adversarial and ultimately cold war-ish,” he added.
A Reversal of Fortune
With a rise in business confidence, investors can look to the major indexes like the S&P 500 to gain strength. As such, one ETF to look at is the Reverse Cap Weighted U.S. Large Cap ETF (BATS: RVRS).
When it comes to problem-solving methodologies, a common heuristic approach might involve working backward, but what about turning things upside down? In the case of Exponential ETFs’ RVRS, upside down is the right side up.
The secret sauce lies in its methodology of turning the S&P 500 upside down on its head–RVRS seeks to reflect the performance of the Reverse Cap Weighted U.S. Large Cap Index, which is comprised of S&P 500 constituents. However, the fund places greater emphasis on the bottom of the large-cap market, essentially turning the S&P 500 upside down.
On the opposite or more traditional end of the spectrum, market capitalization-weighted funds typically skew toward the largest companies. This creates exposure to the biggest, but not necessarily the best performers in the S&P 500.
Reverse Cap-Weighted Benefits
Benefits of the reverse cap-weighted strategy:
- Tilts large-cap exposure to the smaller end of the size spectrum where studies have shown that while more volatile, smaller stocks can have outsized returns.
- Provides a less concentrated distribution of stock weightings, increasing overall diversification.
- Results in a weighted average market cap that is both significantly lower than market cap-weighted large-cap funds, and significantly higher than mid-cap funds. Portfolios that allocate to market cap-weighted versions of large, mid and small-cap now have a tool to gain exposure to a sizeable gap in their holdings.
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