Spicing Up The Developed Markets Trade

The developed markets ETF trade has been hot in 2017, and investors have highlighted their enthusiasm for the trade via massive inflows into plain vanilla developed markets exchange-traded funds.

Tactical traders looking to participate in the resurgent developed markets trade have other options to consider too, including the Direxion Daily MSCI Developed Markets Bull 3X Shares DZK. DZK attempts to deliver triple the daily returns of the widely followed MSCI EAFE Index.

Compared to other leveraged ETFs, DZK's historical volatility is not alarmingly high. Still, the same warnings that apply to all leveraged ETFs apply to DZK.

“These leveraged ETFs seek a return that is 300 percent or -300 percent of the return of their benchmark index for a single day,” according to Direxion. “The funds should not be expected to provide three times or negative three times the return of the benchmark’s cumulative return for periods greater than a day.”

A Hidden Gem

While investors have been overly fond of traditional developed markets ETFs this year, traders seem to be glossing over DZK as the leveraged ETF has seen only modest inflows this year. That attitude could change heading into 2018 as the U.S. bull market continues aging, prompting market participants to look for more attractive values elsewhere.

Additionally, major developed market central banks that are no the Federal Reserve remain accomodative. The Bank of Japan and the European Central Bank are unlikely to reveal tight monetary policy anytime soon. Next year's meetings for those central banks could present active traders with short-term opportunities in DZK, particularly if looser monetary policy initiatives are unveiled.

Japan is the largest country allocation in the MSCI EAFE Index while France and Germany, the Eurozone's two largest economies, combine for about 20 percent of that benchmark.

For The Bears

For traders that just are not believers in more upside for the MSCI EAFE Index or for those looking to play short-term pullbacks in that index, there is DZK's bearish cousin, the Direxion Daily MSCI Developed Markets Bear 3X Shares DPK.

DPK is designed to deliver triple the daily inverse returns of the MSCI EAFE Index.

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