Day Hagan Smart Sector International ETF (SSXU)

The Day Hagan Smart Sector International ETF (SSXU) extends the same rules-based, sector-rotation strategy used in its US counterpart across the developed and emerging markets of the world outside North America. It holds stocks from multiple countries and regions — Western Europe, Japan, Asia, and beyond — grouped by economic sector, then weighted not by market cap but by quantitative metrics that identify undervalued and lower-volatility sectors. For investors seeking exposure to international equity markets with a tilt toward disciplined, systematic sector allocation, SSXU offers an alternative to plain-vanilla international index funds.

The global equity markets move in cycles that often diverge from those of the United States. During periods when the US dollar strengthens, international stocks can lag despite solid local performance. When emerging markets are in favor, they lead. When rates rise and commodity-heavy countries benefit, their sectors outperform. SSXU’s architecture assumes that these sectoral and regional tilts can be systematized — that by measuring value, stability, and momentum across international sectors, the fund can find more attractive exposures than a simple market-capitalization-weighted international index would offer.

The fund holds stocks from dozens of countries, including the largest developed markets like the UK, Germany, France, and Japan, as well as major emerging markets like India, China, Brazil, and Mexico. Within each region, it holds companies across all major sectors — Technology, Healthcare, Industrials, Financials, Consumer Discretionary, and the rest. The weighting scheme, however, is not based on which countries or sectors are biggest by market cap. Instead, the fund’s index calculates a composite score for each sector that accounts for valuation metrics such as price-to-earnings and price-to-book ratios, momentum indicators, and earnings quality. Sectors that score highly on these metrics get overweighted relative to their market-cap share; sectors with lower scores get underweighted. The portfolio rebalances quarterly to reflect any shifts in these scores.

This approach introduces several layers of complexity compared to a simple MSCI EAFE index. The fund is betting not just on international equities in general, but on the specific thesis that poorly valued sectors — whether in Japan’s Financials, Europe’s Utilities, or India’s Materials — will eventually outperform their richly valued peers. It is also implicitly betting that the algorithmic scoring system correctly identifies attractive sectors across very different economies and regulatory environments. That is harder than doing the same within the US alone, because accounting standards, corporate structures, and the mix of state-owned enterprises vary widely by country.

Currency exposure is another layer. SSXU is denominated in US dollars, so when you buy it, you are taking on the dollar’s movement against dozens of other currencies. If the dollar strengthens, international returns are dampened in dollar terms, even if local stock markets rise. If the dollar weakens, you get a tailwind. Unlike some international funds, SSXU does not hedge currencies, meaning you own whatever currency exposure comes with the underlying stocks. That can be a feature or a bug, depending on whether you believe the dollar will strengthen or weaken and whether you want currency diversification or not.

The fund’s expense ratio is typically in the 0.50 to 0.65 percent range, reflecting the complexity of the underlying index and the quarterly rebalancing. It trades on a major US exchange with reasonable daily volume, though less than comparable US-listed funds. The bid-ask spread is usually tight enough for standard retail or institutional buy-and-sell orders.

SSXU appeals to investors who want international equity diversification but are skeptical of market-cap weighting. A cap-weighted international index at any point in time may be heavily overweight Japan (historically) or China (more recently), depending on which market has soared in value. The same index will have its sector mix determined by the largest markets’ economic structures — if Technology dominates in the UK and Financials dominate in Japan, the fund’s sector weights will reflect that distribution rather than any judgment about which sectors are attractive. SSXU’s approach, by contrast, constructs sectors globally and then weights them based on their individual metrics.

The timing benefits or costs of that approach depend on whether sector value metrics are reliable signals across borders and whether international factors — currency moves, geopolitical shifts, emerging-market crises — overwhelm the sector signals. In periods when international value is sharply cheaper than US value and the dollar is falling, SSXU can significantly outperform a market-cap-weighted international fund. In periods when emerging markets are in crisis and investors flee to dollar safety, even the best-valued international sectors can lag. The fund works best for investors with a multi-year time horizon who believe in the power of sector rotation but also want exposure to growth opportunities outside the US, and who are comfortable with the unpredictability of international markets and currency fluctuations.

Research SSXU by examining its geographic and sector allocations relative to a simple MSCI EAFE index and comparing returns across market cycles — especially periods of strong dollar performance versus weak dollar performance. Review the fund’s methodology to understand how the scoring algorithm works across such different markets. Watch whether the international sector tilts that SSXU identifies tend to precede or lag actual international sector outperformance. And consider whether you need international exposure at all, and whether you prefer a simple, low-cost international index fund or whether SSXU’s active tilting strategy aligns with your view of international markets.