Will Large Caps Be Immune to Coronavirus?

After dropping 600 points in last Friday’s market session, the Dow Jones Industrial Average was able to bounce back into the green in Monday’s session and continue on Tuesday, but the coronavirus outbreak continues to roil the markets with volatility. If its effects on the capital markets persist, will it be large cap equities that will be more immune to the volatility versus small cap equities?

In 2019, large caps were outdoing their small cap peers as the markets roared to record highs.

“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 Investments Relative Weight 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.”

For investors looking for continued upside in large cap equities over small caps, the Direxion Russell Large Over Small Cap ETF (NYSEArca: RWLS) offers them the ability to benefit not only from large cap equities potentially performing well, but from their outperformance compared to their small cap brethren.

RWLS Fund Facts:

  • The Russell 1000®/Russell 2000® 150/50 Net Spread Index (R1R2NC) 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 Russell 2000® 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 large-capitalization over small-capitalization investment view by overweighting exposure to the Long Component and shorting exposure to the Short Component.

Conversely, if investors believe that small cap equities will outperform large cap equities, the Direxion Russell Small Over Large Cap ETF (NYSEArca: RWSL) provides a means to not only see small cap stocks perform well, but a way to capitalize on their outperformance versus their large cap brethren.

To read the latest Relative Weight insights, click here.

For more market trends, visit ETF Trends.