U.S. equities seem to be shaking off the effects of the coronavirus as investors are seeing the major indexes continue their trajectory to more record highs after hitting a speed bump with the latest virus outbreak news. For relative value ETF traders, it’s definitely a welcome sign if they’re leaning on strength for U.S. equities.

“We had that sharp sell-off on Friday, so it’s natural to see a bounce-back,” said Keith Lerner, chief market strategist at Truist/SunTrust Advisory. “But we think this corrective period has a bit more to go.”

“We are looking for higher highs in the S&P 500 Index once the Coronavirus fears subside,” said Marc Chaikin, CEO of Chaikin Analytics, in a note. “Buying opportunities abound in strong sectors and industry groups.”

The latest optimism isn’t to say that the dangers of the coronavirus are in the rearview mirror. Its effects could still be felt in the world’s second largest economy.

“The coronavirus is different. It is big. It’s going to paralyze China. It’s going to cascade into the global economy,” said Mohamed El-Erian, chief economic advisor at Allianz. “We should try and resist our inclination to buy the dip.”

Trading U.S. Equities Strength

It appears for now that strength in U.S. equities is persisting after a record 2019. This manifested itself into more inflows for ETFs.

“Like performance, ETF flows heavily favored the U.S. relative to other regions, and U.S. large caps were in favor relative to small caps for nearly the entire year,” a Direxion Relative Spotlight post noted. “Investors also favored developed market ETFs compared to emerging markets products, and cyclical sectors compared to defensive sectors, but the magnitude of flow leadership were really in the U.S. relative to international and U.S. Large Cap relative to Small Caps spaces. Thanks to $6.39 billion of inflows compared to $1.34 billion in the fourth quarter, investors favored ETFs focused on value stocks even after they continued to suffer relative to growth. Notably in December, defensive sector ETFs took $1.43 billion, while cyclical sector ETFs saw $3.18 billion of outflows.”

All this creates an opportunity for investors to capitalize on the Direxion FTSE Russell US Over International ETF (NYSEArca: RWUI).

RWUI features:

  • 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”).

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