With trade wars, interest rates and fears of a global economic slowdown weighing on the minds of investors in the current market landscape, there’s a plethora of options available to get defensive, opt for safer-haven large cap equities or look for opportunities abroad. However, if an investor can identify significant trends prevailing in the market over other trends, he or she can capitalize on this confirmation bias with single-product efficiency through Direxion’s Relative Weight ETFs.
Whether an investor thinks U.S. equities in general will outpace international equities or emerging markets will supplant developed markets in terms of performance, the Relative Weight ETFs give investors this unique capability without having to spread capital over a multitude of positions.
“Broadly speaking, the reception for them (Relative Weight ETFs) continues to be favorable in the marketplace,” David Mazza, Head of Product at Direxion Investments told ETF Trends.
1. Growth Versus Value
During the market doldrums to end 2018, investors were typically better off discarding the growth factor and seeking refuge under an umbrella of value as a defensive play. In 2019, there continues to be separate camps of analysts who say value is in vogue while others say the growth party isn’t over just yet.
Whichever camp an investor’s confirmation bias happens to be at the time of analysis, he or she can play the Direxion Russell 1000 Growth Over Value ETF (NYSEArca: RWGV) and the Direxion Russell 1000 Value Over Growth ETF (NYSEArca: RWVG).
For investors looking for continued upside in growth-oriented equities over value-oriented equities, RWGV offers them the ability to benefit not only from growth opportunities potentially performing well, but from their outperformance compared to value.
Conversely, if investors believe that value-oriented equities will outperform growth-oriented equities, RWVG provides a means to not only see value opportunities perform well, but as a way to capitalize on their outperformance compared to growth.
2. Small Cap Versus Large Cap
Amid last week’s selloff in U.S. equities that saw the Dow Jones Industrial Average post five losing sessions in a row, the markets were even rougher for small cap stocks as the Russell 2000 posted its worst week in 2019.
Last Wednesday, March 6 saw the index, which is a prime measure of small cap stock performance, fall 2 percent. This is a cause for concern to some analysts since a majority of small cap companies derive their revenue sources domestically, and their performance correlates well with investor confidence.
Will weakness in small caps allow large caps to prevail ahead?
For investors looking for continued upside in large cap equities over small caps, the Direxion Russell Large Over Small Cap ETF (NYSEArca: RWLS) offers them the ability to benefit not only from large cap equities potentially performing well, but from their outperformance compared to their small cap brethren.
Conversely, if investors believe that small cap equities will outperform large cap equities, the Direxion Russell Small Over Large Cap ETF (NYSEArca: RWSL) provides a means to not only see small cap stocks perform well, but a way to capitalize on their outperformance versus their large cap brethren.
3. U.S. Versus International
American household net worth fell to its lowest level since the financial crisis during the fourth quarter of 2018 when volatility roiled the capital markets, according to data published by the Federal Reserve.
Net worth dropped to $104.3 trillion to close out 2018, which represents a $3.73 trillion decline–3.4 percent. Despite the decline in household net worth, gross domestic product (GDP) rose 2.6 percent during the fourth quarter, which bested expectations of 2.2 percent by a Dow Jones survey of economists.
Will this affect the U.S. economy to a point where international equities will benefit moving forward?
For investors looking for continued upside in U.S. equities over international equities, the Direxion FTSE Russell US Over International ETF (NYSEArca: RWUI) offers them the ability to benefit not only from domestic U.S. markets potentially performing well, but from their outperformance compared to international markets.
Conversely, if investors believe that international markets will outperform U.S. domestic markets, the Direxion FTSE International Over US ETF (NYSEArca: RWIU) provides a means to not only see international markets perform well, but a way to capitalize on their outperformance compared to the U.S. markets.
4. Defensive Versus Cyclical
U.S. equities are off to a strong start with the Dow up 9 percent, the S&P 500 up 9.42 percent and the Nasdaq Composite 11.65 percent higher. As such, a positive risk appetite is returning to the capital markets, which set the tone cyclical equities during the month of February.
In its latest Relative Weight Outlook report, Direxion mentioned that “even in the face of slowing global economic growth and increased geopolitical uncertainty, equity-market volatility collapsed markedly as risk appetite increased.”
February, in particular, saw cyclicals take the lead over defensive sectors, but will these trends continue?
For investors looking for continued upside in U.S. cyclical sectors over defensive sectors, the Direxion MSCI Cyclicals Over Defensives ETF (NYSEArca: RWCD) offers them the ability to benefit not only from cyclical sectors potentially performing well, but from their outperformance compared to defensive sectors.
Conversely, if investors believe that U.S. defensive sectors will outperform cyclical sectors, the Direxion MSCI Defensives Over Cyclicals ETF (NYSEArca: RWDC) provides a means to not only see defensive sectors perform well, but a way to capitalize on their outperformance compared to cyclical sectors.
5. Developed Markets Versus Emerging Markets
2019 has thus far seen the reemergence of emerging markets (EM), but while investors are sifting through the plethora of opportunities the EM space has to offer, investors can play to the strength of the EM space over developed markets.
For investors looking for the continued upside in emerging market assets, whether driven by a weakening USD or continued developments around trade, the Direxion MSCI Emerging Over Developed Markets ETF (NYSEArca: RWED) offers them the ability to benefit not only from emerging markets potentially performing well, but from emerging markets outperforming developed markets.
Conversely, if investors believe that resolutions to the big issues impacting sentiment today are in motion, the Direxion MSCI Developed Over Emerging Markets ETF (NYSEArca: RWDE) provides a means to not only see developed markets perform well, but a way to access a convergence/catch-up in performance of DM relative to EM, a spread that has clearly widened over the past 6 months.
For more relative market trends, visit our Relative Value Channel.