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Domestic Stocks Are Leading Again. Capitalize On That With This ETF

May 6, 2020 9:10 am
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Domestic Stocks Are Leading Again. Capitalize On That With This ETF

In a movie that investors have seen plenty of times before, U.S. stocks bested their international counterparts last month.

While there are pockets of opportunity in markets outside the U.S., it's not an unreasonable expectation that domestic stocks will continue leading when the coronavirus situation eases and the economy starts inching back towards normal.

What Happened

Obviously, investors have numerous avenues for capitalizing on resurgent domestic equity markets, but the Direxion FTSE Russell US Over International ETF (NYSE:RWUI) allows investors to participate in U.S. upside at the expense of other developed markets.

RWUI follows the Russell 1000®/FTSE All-World ex US 150/50 Net Spread Index. That benchmark obtains long exposure through the popular Russell 1000 Index while featuring a 50 percent short position in the FTSE All-World ex US Index.

Why It's Important

RWUI is relevant over the near-term not just because of U.S. equities' strong April showing, but also because stocks here are leading some other markets on a year-to-date basis.

“US stocks led the April relief rally: the Russell 1000 rose 13.2% for the month, and the US small cap Russell 2000 did even better, rising 13.7%,” said Philip Lawlor, FTSE Russellmanaging director for global markets research in a note out Tuesday. “Both were well ahead of developed-market peers and the FTSE All-World ex US, which gained 7.7% for the month. The year-to-date COVID-19 toll has been far less severe for US stocks than for equity markets elsewhere.”

Adding to the case for RWUI is that several of the largest geographic exposures in the FTSE All-World ex US Index, the benchmark the Direxion fund shorts, are home to sagging economies and are deemed as value plays, a factor that's still disappointing investors. Some of those countries include Japan, the U.K. and France.

What's Next

Another catalyst for RWUI is, not surprisingly, is technology exposure. That's the largest sector allocation in the Russell 1000 Index, but it's not nearly as prominent in the FTSE All-World ex US Index.

Data confirm the RWUI methodology is meaningful. The Direxion fund is lower by 7.82% year-to-date, but that's far better than the 20.20% shed by the most popular gauge of ex-US developed market stocks.

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