After sagging last year, emerging markets stocks and exchange traded funds are rallying early in 2019. However, many basic emerging markets ETFs, such as the iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG) and the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) feature significant China exposure.
Additionally, those funds are feature large weights to other Asian economies, such as South Korea and Taiwan, meaning Asian economies really drive the performances of supposedly diverse emerging markets ETFs.
A new ETF can help investors participate in emerging markets upside while mitigating some of the risks associated with large Far East exposure. The newly minted Direxion MSCI Emerging Over Developed Markets ETF (NYSEARCA: RWED) targets the MSCI Emerging Markets IMI – EAFE IMI 150/50 Return Spread Index.
“One way to play the emerging markets is through Direxion’s relative-weight ETFs, says Andrew McOrmond, managing director of WallachBeth Capital. The RWED Emerging Over Developed Markets ETF is 150 percent long emerging markets and 50 percent short the MSCI Europe, Australasia and Far East ETF,” reports CNBC.
RWED is part of a broader suite of relative weight ETFs launched by Direxion earlier this month.
Revealing Relative Weighting
“The ETFs seek to track indexes from FTSE Russell and MSCI that capture common macro thematic views, without the typical constraints encountered with other funds. Investors who deploy some level of thematic views in their investment process can now use shorting to enhance their long exposure,” according to Direxion.
RWED makes accessible to advisors and investors a strategy that has long been used by institutional investors.
““The long portion is funded by the short and it’s inside of this vehicle,” McOrmond said in an interview with CNBC. “Advanced institutions and clients have always put on relative weight trades. It just hasn’t been available and now it is.”
RWED’s top five long geographic exposures look similar to those of the MSCI Emerging Markets Index. The fund’s short exposures include Japan, the U.K., France and Switzerland, among others.
The new ETF charges 0.58% per year, or $58 on a $10,000 investment.
For more on new ETFs, please visit our new ETFs channel.