Arrow Funds launches country rotation and ‘Dogs of the World’ ETFs

Jan 3rd, 2018 | By | Category: Equities

Arrow Funds has launched two ETFs offering distinct approaches to international equities investing. The Arrow DWA Country Rotation ETF (DWCR US) provides exposure to some of the best performing developed and emerging market countries, while the Arrow Dogs of the World ETF (DOGS US) offers a contrarian strategy by targeting the worst performers.

Arrow Funds launches two international equity ETFs

The Arrow DWA Country Rotation ETF is the second ETF collaboration between Arrow Funds and Dorsey Wright.

“DWCR and DOGS represent a sort of yin and yang approach to international equity exposure,” said Joseph Barrato, Arrow Funds’ CEO and director of investment strategy. “On one hand, in DWCR we have a holistic international solution that provides exposure to top performing countries. On the other hand, with DOGS we offer an opportunistic play for value-minded investors by identifying the worst performing countries.”

DWCR tracks the Dorsey Wright Country and Stock Momentum Index which leverages the technical analysis expertise of Dorsey Wright & Associates to offer a systematic, price momentum strategy that capitalizes on changing international market trends. The index begins with a universe of 41 countries before narrowing the selection down to the ten countries which exhibit the highest relative strength.

‘Relative strength’ in this context compares the price performance, or momentum, between countries – according to Dorsey Wright, absolute momentum is not as important as relative momentum. The model determines whether momentum is increasing relative to another country and assigns a buy signal if it is. The countries are then ranked in descending order according to their cumulative number of buy signals.

Once the countries are identified, the methodology goes a step further by identifying the ten companies within each country that are demonstrating powerful relative strength characteristics. The index is equally weighted at both the country and stock level and is rebalanced quarterly.

DWCR is listed on Nasdaq and has a total expense ratio (TER) of 0.75% due to a contractual fee waiver in place until at least 31 December 2018. Its gross expense ratio is 0.80%.

Conversely, DOGS employs a contrarian strategy to find value among the worst performing international securities where a mean reversion is expected. The underlying AI Dogs of the World Index (ex USA) is composed of the five worst-performing countries among a universe of 44 developed, emerging and frontier markets. Holdings represent the top 75% of the market capitalization for each of the five countries selected. Rebalancing occurs annually.

Barrato added, “We are pleased to introduce DOGS, the first packaged mean reversion strategy with an international focus, giving investors the opportunity to have exposure to an investment strategy that taps into deeply undervalued countries. Both strategies have a low correlation to the to the US equity market.”

DOGS is listed on NYSE Arca and charges a TER of 0.65% per annum with a similar contractual fee waiver in place. Its gross expense ratio is 0.70%.

Arrow Funds highlights that while the US economy has seen growth for eight years since the global financial crisis, the international markets have been relatively anaemic. Over the last ten years, the universe of investible countries has, on average, generated a 0.7% return compared to the US market’s 8.7%. Now, however, the firm notes the greatest acceleration in growth is happening abroad in regions in earlier stages of their expansion relative to the US.

Barrato added, “While there is still room for growth in the US market, investors should have the ability to generate greater returns from their international exposure in their portfolio over the next ten years. DWCR and DOGS are unique international trading strategies that have the ability to generate alpha versus a traditional international portfolio, and at the same time can help diversify investors’ US equity positions.”

DWCR is not the first ETF introduced by Arrow Funds in collaboration with Dorsey Wright. The Arrow DWA Tactical ETF (DWAT US) harnesses the same relative strength approach in the context of a global macro strategy. Depending on momentum signals, the fund rotates between asset classes (equities, fixed income, and alternatives), as well as between sub-categories within each asset class. It is listed on Nasdaq and its TER is a hefty 1.40%.

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