Major U.S. indexes are roaring to new highs with the S&P 500 and Dow Jones Industrial Average feeding off strength in the market optimism from a U.S.-China trade deal. However, investors shouldn’t forget about international markets, which could give ETF investors an opportunity to make some relative value plays.

Whether emerging or developed, international markets have been trailing U.S. equities in the past 10 years, but the tide could finally be turning. Even though the major U.S. indexes are feeling the good vibrations in the stock market, it’s still necessary to look abroad for further opportunities.

“International stocks, both in emerging markets and developed markets, have significantly underperformed U.S. stocks over the past decade,” wrote Andres Cardenal in Seeking Alpha. “This has produced a wide valuation difference, and international stocks are now massively cheaper than U.S. stocks. Interestingly, the main trends seem to be reversing lately, with international stocks starting to produce better returns in recent months. In terms of both value and timing, it makes a lot of sense to consider a sizeable exposure to international stocks in the current environment.”

When it comes to factors for outperformance, momentum and value are key drivers. As the extended bull run in U.S. equities starts to run out of steam, it could be international markets in a different economic cycle that could pave the way for gains.

“Value and momentum are arguably the two most important return drivers to consider when investing,” Cardenal said. “You want to buy cheap markets, and you also want to buy those cheap markets at the right time, meaning when they are starting to move in the right direction.”

“International stocks are much cheaper than U.S. stocks, and they are starting to outperform U.S. stocks lately,” he added. “In plain English, both value and momentum are favoring international markets right now.”

The Direxion FTSE International Over US ETF (NYSEArca: RWIU) gives investors the opportunity to capitalize on their hunch that international equities will outdo U.S. equities. RWIU seeks investment results, before fees and expenses, that track the FTSE All-World ex US/Russell 1000 150/50 Net Spread Index. The FTSE All-World ex US/Russell 1000® 150/50 Net Spread Index (R1AWXUNC) measures the performance of a portfolio that has 150 percent long exposure to the FTSE All-World ex US Index and 50 percent short exposure to the Russell 1000® Index.

On a monthly basis, the Index will rebalance such that the weight of the Long Component is equal to 150 percent and the weight of the Short Component is equal to 50 percent of the Index value. In tracking the Index, the Fund seeks to provide a vehicle for investors looking to efficiently express an international over domestic 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.

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