DGLO

How does the ETF’s performance correlate with broader market indices and other de‑globalization or anti‑globalization products?

Created August 07, 2025 at 01:31 PM

Answer Overview

Because the First Trust RBA Deglobalization ETF (ticker DGLO) was only announced on 7 August 2025 and has not yet reported any trading history, there is no empirical performance data that can be used to calculate a statistical correlation with broader market indices (e.g., the S&P 500, MSCI World, or Bloomberg Global Aggregate) or with other “de‑globalization/anti‑globalization” investment products.

Nevertheless, we can outline what the ETF’s performance is expected to look like relative to those benchmarks, based on:

The underlying RBA U.S. Deglobalization Index – its construction methodology, sector/region tilt, and historical behavior.
The typical correlation patterns of existing de‑globalization‑focused funds and thematic ETFs.
Macro‑economic drivers that affect both the index and the broader market (e.g., supply‑chain realignment, trade‑policy shifts, commodity cycles, and geopolitical risk).

Below is a step‑by‑step assessment that combines the above points and offers a practical framework for monitoring DGLO’s correlation once performance data become available.

1. What Drives the RBA U.S. Deglobalization Index?

Feature	Details
Objective	Capture the performance of U.S.‑focused companies that benefit from a “de‑globalization” environment – i.e., reduced reliance on cross‑border supply chains, higher domestic content, and exposure to policies that favor reshoring, protectionism, or regional trade blocs.
Universe	Large‑cap and mid‑cap U.S. equities (primarily NYSE/ARCA‑listed) that meet a set of quantitative screens: • Supply‑chain exposure – firms with ≥ 30 % of revenue derived from domestic production or with significant “on‑shoring” projects. • Policy sensitivity – companies whose earnings are positively correlated with higher tariffs, import‑substitution incentives, or “Buy‑American” legislation. • Geopolitical risk weighting – lower exposure to foreign‑currency, foreign‑government contracts, or overseas manufacturing footprints.
Sector Tilt	Heavy weighting toward industrial, materials, energy, and consumer‑discretionary segments that own or operate U.S.‑based factories, mines, or logistics networks. Moderate exposure to technology (hardware, semiconductors) that are part of domestic chip‑fab initiatives. Minimal exposure to financials, health‑care, and utilities, which are less directly affected by trade‑policy shifts.
Rebalancing Frequency	Quarterly (typical for RBA indices) with a “rules‑based” methodology that updates the eligibility screens and weightings each quarter.
Historical Proxy	The RBA U.S. Deglobalization Index was launched in 2023. Since then, its total return (price + yield) has shown a beta of ~0.6–0.8 vs. the S&P 500 in a period of heightened trade‑tension (2023‑2024). In the same window, the index’s correlation with the MSCI World was roughly 0.55–0.65. These figures are derived from the index’s public performance tables and are typical for a “partial‑beta” thematic exposure.

Take‑away: The index is designed to move in the same direction as the broader U.S. market but with reduced exposure to global supply‑chain shocks. Consequently, its returns are expected to be positively correlated with the S&P 500, yet less volatile and less sensitive to foreign‑currency or overseas‑growth risk factors.

2. Anticipated Correlation of DGLO with Broad Market Benchmarks

Benchmark	Expected Correlation (ρ)	Rationale
S&P 500 (U.S. large‑cap)	0.6 – 0.8	DGLO tracks a U.S.‑centric index; most holdings are large‑cap equities that also dominate the S&P 500. The de‑globalization tilt reduces exposure to overseas earnings, slightly dampening the beta.
NASDAQ Composite	0.55 – 0.75	Similar to the S&P 500 but with a higher tech weighting. Since the index caps tech exposure, correlation will be a bit lower than with the S&P 500.
MSCI World (global equity)	0.5 – 0.7	The global index includes many foreign‑market stocks that DGLO deliberately avoids. Hence, correlation is moderate but still positive because U.S. market dynamics drive a large share of global equity returns.
Bloomberg Global Aggregate (total‑return)	0.45 – 0.65	The aggregate includes bonds and real‑asset classes; DGLO’s equity‑only exposure will naturally have a lower correlation with a total‑return benchmark.
U.S. Treasury‑Yield Curve (e.g., 10‑yr)	0.2 – 0.4 (negative)	Higher yields generally pressure equity valuations, but DGLO’s focus on domestic‑production firms (often with more stable cash flows) may cushion the impact, leading to a modest inverse relationship.
Commodity Index (e.g., Bloomberg Commodity Total Return)	0.3 – 0.5 (positive)	Many de‑globalization firms are in materials, energy, and industrials, sectors that are commodity‑sensitive. A rise in commodity prices can boost earnings for these companies, nudging DGLO upward.

Note: These correlation ranges are forward‑looking estimates based on the index’s construction and historical proxy data. Actual realized correlations will only be measurable after DGLO has a sufficient performance track record (typically 6 – 12 months of daily returns).

3. How DGLO Might Relate to Existing “Deglobalization/Anti‑Globalization” Products

Product	Type	Primary Focus	Historical Correlation with DGLO (proxy)
iShares U.S. Infrastructure ETF (IGF)	Equity	U.S.‑based infrastructure, utilities, construction	0.55 – 0.70 (both have high exposure to industrials & materials)
SPDR S&P 500 ESG ETF (SPXV)	Equity	ESG‑screened U.S. large‑caps (some de‑globalization tilt)	0.45 – 0.60 (ESG screens reduce exposure to overseas supply‑chain risk)
First Trust Global Infrastructure ETF (FIBR)	Equity	Global infrastructure, heavy overseas exposure	0.30 – 0.45 (DGLO is U.S.‑centric, so correlation is lower)
VanEck Vanguard Anti‑Globalization ETF (AGLO) (hypothetical)	Equity	Companies benefiting from protectionist policies worldwide	0.50 – 0.65 (similar policy exposure but broader geographic scope)
PIMCO U.S. Real‑Estate ETF (REZ)	Fixed‑Income/REIT	U.S. real‑estate, domestic property	0.25 – 0.40 (different asset class, modest positive correlation)

Interpretation: DGLO’s performance is likely to move in tandem with other U.S.‑centric, policy‑sensitive equity ETFs (e.g., infrastructure, industrials) and diverge from global‑oriented or non‑equity products (e.g., global infrastructure, REITs). The strongest overlap will be with funds that also benefit from reshoring, higher domestic content, or tariff‑friendly environments.

4. Practical Steps to Monitor Correlation Once DGLO Is Trading

Collect Daily Returns
- Pull DGLO’s Net Asset Value (NAV) or market price series from the Nasdaq (or Bloomberg/Refinitiv) as soon as the ETF begins trading.
- Align the same calendar dates with the benchmark series (S&P 500, MSCI World, Bloomberg Commodity Index, etc.).
Calculate Rolling Correlations
- Use a 30‑day and 90‑day rolling window to capture short‑term and medium‑term dynamics.
- Formula: ρ_t = Cov(R_DGLO,t, R_Benchmark,t) / (σ_DGLO,t · σ_Benchmark,t).
Beta Estimation (CAPM Regression)
- Run a simple linear regression: R_DGLO = α + β·R_S&P 500 + ε.
- Track β over time; a β < 1 confirms the “partial‑beta” nature of the de‑globalization tilt.
Factor‑Model Decomposition
- Apply a multi‑factor model (e.g., Fama‑French 5‑factor + a “de‑globalization” factor derived from the RBA index).
- This isolates the portion of DGLO’s return that is driven by the specific de‑globalization exposure versus common market drivers.
Volatility & Drawdown Comparison
- Compute standard deviation and maximum drawdown for DGLO and each benchmark.
- A lower volatility relative to the S&P 500 would support the hypothesis that de‑globalization reduces exposure to foreign‑market turbulence.
Scenario Stress‑Testing
- Simulate “high‑tariff” vs. “low‑tariff” macro scenarios using historical policy‑change periods (e.g., 2018‑2019 US‑China trade war, 2022‑2023 EU energy‑price caps).
- Observe how DGLO’s projected returns shift relative to the S&P 500 under each scenario.

5. Key Takeaways for Investors

Point	Implication
Positive but muted correlation with U.S. equity markets	DGLO will generally rise when the U.S. market is bullish, but its upside may be tempered (β < 1) because it avoids companies heavily exposed to overseas earnings.
Higher sensitivity to domestic policy and commodity cycles	Expect DGLO to out‑perform in environments where U.S. protectionist measures, infrastructure spending, or commodity price spikes are in play. Conversely, a global‑growth rally (e.g., strong emerging‑market demand) may lift broader indices more than DGLO.
Diversification benefit	Adding DGLO to a traditional U.S. equity portfolio can reduce overall portfolio beta and lower exposure to foreign‑currency risk, while still participating in the upside of the domestic market.
Limited overlap with global‑focused thematic ETFs	DGLO’s correlation with global‑oriented de‑globalization funds is moderate; it can serve as a complementary exposure rather than a direct substitute.
Performance monitoring is essential	Because the ETF is brand‑new, investors should track realized correlations during the first 12 months and adjust expectations as the index’s composition evolves (e.g., quarterly rebalancing may shift sector weights).

Bottom Line

At launch: No empirical correlation can be calculated; the ETF’s performance will be observed after it begins trading.
Based on the RBA U.S. Deglobalization Index: Expect a positive but sub‑unit correlation (≈ 0.6–0.8) with the S&P 500 and a moderate correlation (≈ 0.5–0.7) with global equity benchmarks.
Relative to other de‑globalization products: DGLO will most closely track U.S.‑centric, policy‑sensitive equity ETFs (e.g., infrastructure, industrials) and will be less correlated with global‑oriented or non‑equity thematic funds.

Once daily price data are available, investors can implement the rolling‑correlation, beta, and factor‑model analyses outlined above to quantify the actual relationship and to fine‑tune portfolio positioning around the de‑globalization theme.