The Invesco S&P 500 Equal Weight ETF (RSP) sparked controversy when it was introduced as the first equal-weighted index exchange-traded fund in 2003. Who dare challenge the idea of building portfolios with anything but traditional market cap-weighted funds! That was the counterargument by indexing purists against a new breed of funds that allocated holdings differently then simply by a company’s market size.

Few observers could’ve predicted the ensuing avalanche of alternative-weighted funds within the ETF marketplace that the RSP fund would spark. Besides equal-weighted funds, there is a multiplicity of alternative weighted ETFs based on dividends, revenue, reverse market cap-weighted strategies and more.

Adding to this trend is a newer species of ETFs that use a relative-weighting strategy. To understand how this works, let’s suppose you’re bullish on U.S. stocks and you think the current cycle favors them over developed international stocks. How would you reflect that view in an ETF trade?

One strategy could be to own a bullish 2x leveraged ETF like the ProShares Ultra S&P 500 ETF (SSO) while simultaneously holding a position in the ProShares Short MSCI EAFE (EFZ). The added leverage with SSO reflects your bullish view on U.S. stocks within the S&P 500 Index, while the unleveraged trade in EFZ reflects a bearish view on international stocks. EFZ aims for daily 100% opposite exposure to the latter group.

The chief obstacle with this particular trading strategy are rules imposed by certain advisory firms. Simply put, these firms don’t permit advisors to buy or invest client assets in bearish ETFs that short the markets. Firms have generally outlawed these strategies because they don’t want to deal with whatever perceived regulatory scrutiny they bring. And that’s where relative-weight ETFs come in.

A similar trade to the SSO/EFZ tactic would be a one-ticker trade using the Direxion FTSE Russell US Over International ETF (RWUI), which maintains 150% long exposure to the Russell 1000 Index and 50% short exposure to the FTSE All-World ex US Index. By combining long and short exposures, the fund aims to capture the spread or difference in return between the two indexes. Because RWUI uses leverage on the bullish side, its bias is obviously toward U.S. stocks over developed international.

Since its inception in January 2019, RWUI has gained 20.3% whereas the iShares Russell 1000 ETF (IWB) has climbed 18.2%. The performance advantage of RWUI versus IWB is due to the added leverage it uses coupled with the internal shorting of international developed stocks. It’s been the right strategy because U.S. stocks have outperformed their global peers.

It’s worth noting this same strategy of relative weighting with ETFs can be applied to other investment categories, too.

For instance, Direxion has paired ETFs that target growth and value stocks, defensive and cyclical stocks, emerging and developed market stocks, and large- and small-cap stocks. The New York-based company’s lineup includes a total of 10 relative-weighted ETFs.

In the end, relative weighting provides advisors another arrow in their quiver. You can tailor your market exposure without borrowing money on margin and without running afoul of firm-imposed trading limits. It also allows you to keep your client allocations fine-tuned in any type of market climate.

Ron DeLegge is founder and chief portfolio strategist at ETFguide, and is the author of “Habits Of The Investing Greats.”