ETFdb Logo
ETFdb Logo
  • ETF Database
  • Channels
    • Themes
      • Active ETF
      • Artificial Intelligence
      • Beyond Basic Beta
      • China Insights
      • Climate Insights
      • Core Strategies
      • Crypto
      • Direct Indexing
      • Disruptive Technology
      • Energy Infrastructure
      • ETF Building Blocks
      • ETF Investing
      • ETF Education
      • ETF Strategist
      • Financial Literacy
      • Fixed Income
      • Free Cash Flow
      • Innovative ETFs
      • Institutional Income Strategies
      • Leveraged & Inverse
      • Managed Futures
      • Market Insights
      • Modern Alpha
      • Multifactor
      • Responsible Investing
      • Retirement Income
      • Tax Efficient Income
    • Asset Class
      • Equity
        • U.S. Equity
        • Int'l Developed
        • Emerging Market Equities
      • Alternatives
        • Commodities
        • Gold/Silver/Critical Minerals
        • Currency
        • Volatility
      • Fixed Income
        • Investment Grade Corporates
        • US Treasuries & TIPS
        • High Yield Corporates
        • Int'l Fixed Income
    • ETF Ecosystem
    • ETFs in Canada
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
  • Research
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Index Education
    • Index Insights
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Multimedia
    • ETF 360 Video Series
    • ETF of the Week Podcast
    • ETF Prime Podcast
    • Video
  • Company
    • About VettaFi
    • Get VettaFi’ed
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. Relative Value Investing Channel
  2. Will Defense Continue to Outperform Cyclical?
Relative Value Investing Channel
Share

Will Defense Continue to Outperform Cyclical?

Aaron NeuwirthSep 19, 2019
2019-09-19

Amid trade wars and inverted yield curves, investors have been opting for defensive measures to combat market volatility, which could provide fodder to feed the Direxion MSCI Defensives Over Cyclicals ETF (RWDC B). Can defensives continue to outperform cyclicals through the rest of 2019?

A recent FTSE Russell blog post delved deeper into why defensives have been the go-to option as opposed to cyclicals.

“Several macroeconomic drivers have been fueling the strong outperformance of defensive stocks over their cyclical counterparts,” said Alec Young, FTSE Russell managing director of global markets research. “The biggest has been widespread fears of slowing global growth which has only been exacerbated by seemingly endless US-China trade tensions. This has led companies in defensive, counter-cyclical businesses to lead more economically sensitive stocks.

“In addition, worries about the health of the global economy have driven interest rates to record lows around the world,” Young added. “Given that companies in defensive sectors like utilities, consumer goods, telecommunications and real estate generally sport higher dividend yields than their cyclical counterparts, falling interest rates have helped drive defensive stock leadership.

After four consecutive interest rate hikes in 2018 preceded a recent rate cut by the Federal Reserve, market dynamics are changing given the Federal Reserve’s view on the global economy. Their further foresight on economic activity around the globe and interest rate policy measures will provide insight on how the cyclical sector performs over the coming months.

“Investors looking for cues on better cyclical stock performance may want to focus on the outlook for global growth and the direction of long term interest rates,” said Young. “If confidence in growth improves and interest rates begin to head higher it’s logical to assume cyclical stock performance may become more competitive.”

US Equity Markets Chart

RWDC provides a means to not only see defensive sectors perform well, but a way to capitalize on their outperformance compared to cyclical sectors. The fund tilts towards defensive sectors like health care and consumer staples as shown in the fund’s breakdown. Conversely, it shorts names like the top technology giants that skew towards momentum.

RWDC seeks investment results that track the MSCI USA Defensive Sectors – USA Cyclical Sectors 150/50 Return Spread Index. The Index measures the performance of a portfolio that has 150% long exposure to the MSCI USA Defensive Sectors Index (the “Long Component”) and 50% short exposure to the MSCI USA Cyclical Sectors Index (the “Short Component”).

If investors feel that defensive sectors will get the nod moving forward, they best give RWDC a closer look.

This article originally appeared on ETFTrends.com


Content continues below advertisement

Loading Articles...
Our Sites
  • VettaFi
  • Advisor Perspectives
  • ETF Trends
Tools
  • ETF Screener
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Database Pro
More Tools
  • Financial Advisor & RIA Center
Explore ETFs
  • ETF News
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Information
  • Contact Us
  • Terms of Use and Privacy Policy
  • © 2023 VettaFi LLC. All rights reserved.

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X