If the coronavirus was a pitcher and investors were batters, then the former has to feel like it’s pitching a perfect game. In turbulent times like this where the Dow Jones Industrial Average is coming off its worst week since the financial crisis, it’s time to take a flight to safety via the Direxion Shares ETF Trust – Direxion Flight To Safety ETF (NYSEArca: FLYT).
FLYT aims to deliver a simple, yet robust, approach to portfolio risk mitigation from equity market drawdowns while also providing long-term appreciation potential. By combining long-term U.S. treasury bonds, utility stocks, and gold bullion, the ETF may act as a diversified ballast for portfolios while also acting as a source of uncorrelated returns.
- A strategy that delivers attractive total return potential with defensive equity characteristics
- A way to introduce portfolio risk mitigation that does not require precision in timing and ongoing carry costs
- An ETF with a low correlation to equities and stable volatility can help deliver added diversification to portfolios
“2020 has brought new headline risks for investors to absorb, especially around the novel coronavirus, which started in Wuhan, China,” a Relative Weight Spotlight post by Direxion Investments noted. “By many accounts, authorities are taking aggressive measures to contain the outbreak and limit its contagion effects. These actions are likely helping to limit the negative humanitarian impact, but may also have a perverse effect on the economy as production remains limited for what increasingly looks like an extended time. This also impacts the supply side for many companies with sizable Chinese exposure. This backdrop and subsequent market correction makes the case for investors to look for diversification options to complement their portfolios with stock and bond valuations being threatened and volatility increasing.”
Why take FLYT for a spin? If the rollercoaster-like volatility isn’t enough, it’s the ease of having all the safe havens under one roof–in essence, a one-stop shop for safety.
“The Direxion Flight to Safety Strategy ETF (FLYT) combines three asset classes with historically low correlation to stocks – long-term U.S. treasury bonds, utility stocks, and physical gold – to deliver investors with the potential to serve as a ballast in portfolios during times of turbulence and offer attractive total return and income opportunities in other times,” the post noted.
A Relative Value Trade with Defensive Tilt
As coronavirus fears persist, 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.
RWDC seeks investment results that track the MSCI USA Defensive Sectors – USA Cyclical Sectors 150/50 Return Spread Index. The Index measures the performance of a portfolio that has 150% long exposure to the MSCI USA Defensive Sectors Index (the “Long Component”) and 50% short exposure to the MSCI USA Cyclical Sectors Index (the “Short Component”).
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