Capitalize on Strength in Emerging Markets Over Developed With This ETF

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.

“Clients are taking these positions to provide a ballast against a rising risk in other parts of their portfolio,” Brett Pybus, the managing director for iShares EMEA fixed income at BlackRock, said in an interview. “There’s a lot of geopolitical and macro uncertainty, such as the US-China trade talks, but that’s been priced in, whereas there is a fairly significant dispersion of returns from EM.”

RWED seeks investment results that track the MSCI Emerging Markets IMI – EAFE IMI 150/50 Return Spread Index. The Index measures the performance of a portfolio that has 150 percent long exposure to the MSCI Emerging Markets IMI Index and 50 percent short exposure to the MSCI EAFE IMI Index.

On a monthly basis, the Index will rebalance such that the weight of the Long Component is equal to 150% and the weight of the Short Component is equal to 50% of the Index value. In tracking the Index, the Fund seeks to provide a vehicle for investors looking to efficiently express an emerging over developed investment view by overweighting exposure to the Long Component and shorting exposure to the Short Component.

With 2018’s year-end sell-offs in U.S. equities, investors are giving value investing a closer look in 2019. A byproduct of a shift to value is a focus on the quality of investments–being selective and using due diligence as screeners to find the best-performing investments.

As a result of 2018’s bull market run, the quality factor often goes overlooked compared to growth and value, but with market volatility still a primary consideration and many investors favoring defensive sectors, quality stocks and the related ETFs are worth examining in 2019.

Even during the volatile moments of the market, investors were quick to react to news like trade wars. It’s the type of noise that muddies the minds of investors and disconnects them from the fundamentals of an asset.

Now, investors are giving emerging markets a second look.

“There’s a questioning of how much higher equity markets can go, which is leading investors into a flight to quality,” Tim Urbanowicz, a senior fixed-income ETF strategist at Invesco, said in an interview. “The recent shift from the Fed will put downward pressure on the dollar, which should provide a nice tailwind for emerging markets.”

For more relative market trends, visit our Relative Value Channel.