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Arrow Funds launches two international equity strategy ETFs


Arrow Funds has launched two international equity strategy ETFs, the Arrow DWA Country Rotation ETF and the Arrow Dogs of the World.

The DWA Country Rotation ETF seeks out top performers, while the Arrow Dogs of the World ETF uses a contrarian approach to find value among the worst performers.

“DWCR and DOGS represent a sort of yin and yang approach to international equity exposure,” says 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.”

The index underlying the Arrow DWA Country Rotation ETF leverages the technical analysis expertise of Dorsey Wright & Associates to offer a systematic, price momentum strategy that capitalizes on changing international market trends. Rebalanced quarterly, DWCR and its index begin with a universe of 41 countries, then narrow that list down to the 10 strongest performing countries which exhibit the highest relative strength or price performance. Once those countries have been identified, Dorsey Wright’s methodology then identifies 10 companies that demonstrate powerful relative strength characteristics within that country.

Conversely, the Arrow Dogs of the World ETF employs a contrarian strategy to find value among the worst performing international securities where a mean reversion is expected. Rebalanced annually, DOGS and its underlying index are made up of the five worst-performing countries among a universe of 44 developed, emerging and frontier markets. Holdings represent the top 75 per cent of the market capitalisation for each of the five countries selected.

Arrow launched an international country rotation strategy within the DWA Balanced Fund in 2006. “With the launch of DWCR, we’ve enhanced the international country rotation strategy that we developed with Dorsey Wright 11 years ago. We’ve expanded the country universe and instead of using ETFs, we will be buying individual stocks with the strongest relative strength within those countries,” adds Barrato. “At the same time, 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.”
Arrow writes that investors should consider having a meaningful allocation to international equities in their portfolios because investing internationally helps to diversify a portfolio. “The share of the global economy found outside of the US has been steadily rising.  While the US economy has seen growth for eight years since the global financial crisis, the international markets have been relatively anaemic. Now, the greatest acceleration in growth is happening abroad in regions in earlier stages of their expansion relative to the U.S. Over the last 10 years, the universe of investible countries has on average generated a 0.7 per cent return compared to US market’s 8.7 per cent. The average 10-year return of the U.S. market since 1979 is 10.80 per cent while the international country average is 12.5 per cent.

“The last time the divergence was so wide between the US and the international markets was in 1998,” says Barrato. “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 10 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,” says Barrato. 

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