Arrow Funds CEO comments on the China effect for ETF investors

Commenting on the US’s negative trade balance with China, Arrow Funds CEO Joe Barrato (pictured), says that this has been growing steadily over the last decade and factors such as growing concerns about China’s high debt levels, asset bubbles, and slowdown in industrial sectors, make this the right time to leverage and demand a balanced traded structure between the two countries, while China still relies on trading with the US.  

In his latest piece, ‘The China Effect’, Barrato further notes that this issue should matter to investors as 79 per cent of most assets invested in international products are highly correlated to China, a fact that many investors are unaware of.
 
“We live in a world where rapidly changing events occur globally on a routine basis. The most recent example: the trade talks between China and the United States. These talks have had an impact on most products (mutual funds and ETFs) that have exposure to the international markets. Over the last week, very few countries have escaped the China effect on their equity markets,” Barrato write.
 
And the recent trade talks between China and the US impacted products such as mutual funds and ETFs that have exposure to the international markets. Barrato recommends that investors should diversify and hold assets, industries and countries that have a low or negative correlation-ones that won’t all move in the same direction at the same time. 
 
And in the cases where investors are looking to diversify away from China, they may consider individual countries that have a low correlation to China or look at packaged solutions that focus on country rotation, global yield or something that has a global macro mandate, he says.
 
“Being properly diversified is like playing defense with your portfolio. Investors should diversify and hold assets, industries and countries that have a low or negative correlation – ones that won’t all move in the same direction at the same time.”

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Beverly Chandler
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