Cyclicals over Defensives or is it Technology over Defensives?
Last summer during Jul 2019 Direxion launched an interesting relative value ETF by the name of MSCI Cyclicals Over Defensives ETF (RWCD). Although there is not much trading history available on this ETF this product may be a useful way for disciplined and active investors/traders to buy one group of stocks and simultaneously short another group of stocks – something akin to the way many long/short hedge funds tend to operate.
RWCD tracks an index of US large-cap stocks by deploying leveraged (1.5x) exposure to 5 long cyclical related sectors and short 5 defensive sectors. The leveraged long exposure (150%) sectors are: consumer discretionary (17.75%), financials (22.5%), industrials (13.98%), technology (39%), and materials (3.61%). The partial short exposure (-50%) sectors are: consumer staples, energy, healthcare, telecoms, and utilities. In terms of the current top 10 long positions are: AAPL (6.54%), MSFT (5.47%), US Dollar (4.30%), AMZN (3.62%), FB (2.43%), GOOG (2.11%), GOOGL (2.01%), JPM (1.99%), V (1.632%), and BAC (1.38%). The short positions are: JNJ, PG, XOM, UNH, and MRK.
A quick analysis of RWCD and a brief review of the top 10 long positions, which accounts for 31.5% of the overall index, it is easy to see that this a leveraged call on the technology group rather than a consumer discretionary cyclical vs a consumer staples defensive call. Enclosed below are charts of MSCI Cyclicals Over Defensives (RWCD), S&P Consumer Discretionary Sector SPDR (XLY), and S&P Consumer Staples Sector (XLP).