Relative Weight
The relative-weight strategy allows advisors to emphasis a particular theme or market trend over another. Earlier this year, Direxion launched a suite of 10 ETFs linked to FTSE Russell and MSCI indexes that use a relative-weighting strategy.
Let’s suppose, for instance, you believe stock prices are due for a correction and you want to get defensive. Instead of converting all or part of a client’s portfolio to cash, you could opt for the Direxion MSCI USA Defensives Over Cyclicals ETF (RWDC). The fund maintains 150% long exposure to the MSCI USA Defensive Sectors and 50% short exposure to the MSCI USA Cyclical Sectors Index. The ETF rebalances monthly with the objective of keeping its defensive-oriented goal.
Summary
BlackRock estimates there is $1.9 trillion invested in factor-based investment products, and that is projected to grow to $3.4 trillion by 2022. It’s almost certain the factor ETF market – or “zoo,” as it has been called, will become more crowded.
To simplify, choose the factors that best align with your investment philosophy and with your clients’ investment goals.
Ron DeLegge is founder and chief portfolio strategist at ETFguide.