While investors have been flocking to safe haven assets during the last week’s heavy dosage of volatility, there’s an obvious need need for products that capture the upside potential in U.S. equities. At the same time, however, there’s also a need for strategies that offer downside protection built into the product as we’ve seen with the market oscillations as of late.
One way investors can achieve this is by concentrating on the value factor. During the volatile moments of the market, investors were quick to react to trade war news. It’s the type of noise that muddies the minds of investors and disconnects them from the fundamentals of an asset and thus, it’s value.
Last year, the growth factor had its day in the sun as the extended bull market hit its peak. Now, investors are realizing the downside of owning these growth-oriented equities.
“Its lofty price could fall sharply on any negative news about the company, particularly if earnings disappoint Wall Street,” said Michael Underhill, chief investment officer of Capital Innovations.
That isn’t to say, however, that value stocks are completely immune to fluctuations in the market.
“Value stocks may be more suited to longer term investors and may carry more risk of price fluctuation than growth stocks,” said Underhill.
Or, as investors now realize, trade war news. Just like during the market doldrums to end 2018, investors are typically better off discarding the growth factor and seeking refuge under an umbrella of value as a defensive play.
For investors looking to capitalize on this shift towards value, they can play the Direxion Russell 1000 Growth Over Value ETF (NYSEArca: RWGV) and the Direxion Russell 1000 Value Over Growth ETF (NYSEArca: RWVG).
For investors looking for continued upside in growth-oriented equities over value-oriented equities, RWGV offers them the ability to benefit not only from growth opportunities potentially performing well, but from their outperformance compared to value.
Conversely, if investors believe that value-oriented equities will outperform growth-oriented equities, RWVG provides a means to not only see value opportunities perform well, but as a way to capitalize on their outperformance compared to growth.
Trade wars is just one facet that could affect value over growth or vice versa. With a U.S.-China trade deal already priced into the markets, the next trigger event investors can look to is the forthcoming actions by the Federal Reserve.
“The whole idea that you could skate through the trade war with no adverse effect, we already saw the adverse effects in the fourth quarter of last year in the stock market,” said Julian Emanuel, head of equities and derivatives strategy at BTIG. “In our view, it’s actually been an adverse affect in the first quarter of 2019 with this massive plunge in yields in the U.S. as a result of global weakness in the bond market which reinforces the disinflationary mindset of the Fed.”
For more market trends, visit ETF Trends.