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1.EFA over SPY: Catch-Up Potential

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The case for EFA (iShares MSCI EAFE ETF) outperformance versus SPY is building.

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Europe remains cheaper, less crowded and less supply-heavy than the US. Valuations are still at a sharp discount, even sector-adjusted, while equity supply continues to contract through buybacks and limited IPO issuance.

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Breadth is also better. US returns remain concentrated in mega-cap tech, while Europe’s leadership has been broader across defence, infrastructure, utilities and value-sensitive sectors.

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Qi adds a timing signal. SPY vs EFA is now 1.01 sigma above model value, near the top of its 5-year range. Historically, moves to this upper Fair Value Gap band have been followed by relative spot mean reversion. In simple terms, SPY/EFA looks stretched versus macro fair value.

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The macro backdrop supports the same message. Lower oil and softer EU inflation expectations are both pro-EFA, yet EFA has not caught up with the improvement in those drivers.

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Bottom line: Europe is cheap, uncrowded and broader. Qi says SPY/EFA is stretched. The risk/reward favours EFA catch-up.

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2. DBA - Cheap Rate Vol Insurance

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DBA, the Invesco Agriculture ETF, screens as a tactical long. The ETF has fallen sharply from its mid-May peak, but Qi’s macro model still argues fair value should be higher. Spot is now 1.5 sigma below model value, suggesting the sell-off has overshot the macro signal.

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The key point is that the macro drivers remain supportive. DBA’s top positive drivers are higher real yields, rates volatility, oil and inflation expectations. That is the same real-asset / stagflation mix that supported the trade earlier this year.

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The disconnect is clear in the charts. Spot has broken lower, while Qi fair value has held up. DBA has also tracked Qi FVG closely over the past year, making the current gap more notable (see below).

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Historically, the signal is constructive. Since 2009, buying DBA at this level of cheapness has delivered a 62.5% win rate. Bottom line: DBA now screens as cheap stagflation insurance.

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3. Gold Miners: The Discount Runs Ahead

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The VanEck Gold Miners ETF screens notably cheap on Qi’s model, at −1.59σ (−24.8%): fair value near 95 against spot around 76.

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Inflation is the swing factor. The conflict’s energy shock fed inflation through the spring and hardened the rate path, a double drag on fair value given the model’s negative sensitivity to both. As ceasefire hopes build and that premium unwinds, softer inflation reopens room for rate cuts while energy shifts from headwind to margin relief, a double tailwind on the model’s terms. The offset is that the same calm would temper the metal’s safe-haven bid.

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Fair value already sits a quarter above spot, so the de-rating has outrun the macro. The caveat is model confidence at 67%, only just above threshold.

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On balance the discount looks stretched, and we lean constructively on it narrowing, sized for a developing signal rather than a decisive one.

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