Relative Value Trade Winds Blowing for U.S. Equities, Developed Markets

A softening U.S. economy and coronavirus are a pair of factors that could send trade winds blowing for U.S. equities as well as developed markets. The coronavirus is already affecting the U.S. economy as business contracted in February for the first time based on data from IHS Markit.

Nonetheless, per a MarketWatch report, the coronavirus disruptions could prove short-lived as executives who were “polled said they think the current weakness is temporary and that business will bounce back later in the year.”

“While we certainly wouldn’t rule out economic growth slowing further in the first quarter, weighed down by the crisis at Boeing and disruption due to the coronavirus, we have a hard time believing the apparent message from the Markit PMI that the economy is on the brink of a recession,” said eoonomist Michael Pearce of Capital Economics.

Trading US Equities Strength

Can the major U.S. indexes overcome the current market challenges and exert its strength over international markets? This creates an opportunity for investors to capitalize on the Direxion FTSE Russell US Over International ETF (NYSEArca: RWUI).

RWUI offers investors the ability to benefit not only from domestic U.S. markets potentially performing well but from their outperformance compared to international markets.

  • Seeks investment results, before fees and expenses, that track the Russell 1000®/FTSE All-World ex-US 150/50 Net Spread Index (the “index”).
  • The fund, under normal circumstances, invests at least 80% of its net assets (plus borrowing for investment purposes) in securities that comprise the Long Component of the index or shares of ETFs on the Long Component of the index.
  • The index measures the performance of a portfolio that has 150% long exposure to the Russell 1000® Index (the “Long Component”) and 50% short exposure to the FTSE All-World ex-US Index (the “Short Component”).

Developed Markets Strength Over Emerging Markets

While emerging markets (EM) have been sensitive to the coronavirus outbreak, it creates an opportunity for developed markets strength via the Direxion MSCI Developed Over Emerging Markets ETF (NYSEArca: RWDE). 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.

RWDE Features:

  • The index measures the performance of a portfolio that has 150% long exposure to the MSCI EAFE IMI Index (the “Long Component”) and 50% short exposure to the MSCI Emerging Markets IMI Index (the “Short Component”).
  • 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 a developed over emerging investment view by overweighting exposure to the Long Component and shorting exposure to the Short Component.

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