As investors try to adapt to shifting conditions, one may consider ETFs that take advantage of relative-value strategies in diverging markets.
The equity markets are gaining momentum as previous risks abate, and supports like the Federal Reserve begin to prop up a more risk-on attitude.
“With expectations for a cut in the federal funds rate all but certain and positive sentiment around U.S. – China trade relations, June saw U.S. equity markets mark another all-time high. Economic data around the globe is undeniably trending lower, but we’re seeing signs of stabilization. Fed policy, trade relations, and ‘lower but stable’ data seems to be setting the stage for another ‘Goldilocks’ period,” David Mazza, Managing Director and Head of Product for Direxion, said in a note.
Consequently, investors should still maintain exposure to stocks to benefit from potential opportunities ahead. However, people should also be mindful of their strategies as certain markets are beginning to pull ahead.
“Flows throughout June supported longer-term trends with market positioning, as we saw the largest relative strength in 1-month flows lean towards Large Cap exposures (relative to Small Caps) and U.S. stocks (relative to International names),” Mazza added.
As a way to better capitalize on these growing trends, Direxion has come out with a suite of ETFs to cover well-known investment pairs, and they are built using familiar passive building blocks. For example,the Direxion Russell Large Over Small Cap ETF (RWLS) could help investors take a targeted approach to large-cap U.S. stocks over small-cap stocks. Additionally, the Direxion FTSE Russell US Over International ETF (RWUI) could help investors capitalize on the moves in U.S. markets over international stocks.
The underlying indices for each Relative Weight ETF is built with a 150% long component and 50% short component, resulting in a net exposure of 100% of assets. Each ETF and its benchmark index has an oppositely-weighted counterpart. The ETFs provide relative outperformance if the long component outperforms the short component. The strategy implements the long side of the trade, and then also rewards an investor when a macro view is correct.
Each ETF helps investors capture both sides of their expressed view, with a risk profile similar to the broad underlying asset class. The products are built on Direxion’s core expertise of delivering sophisticated and precise exposure, whether views are short, intermediate or long term.
For more relative value ETF ideas, visit our Relative Value Channel.