Why Smart Beta ETFs Haven't Expanded into Emerging Markets?

Still, opportunities abound. The final chart shows smart beta emerging market ETFs with at least $25 million. The chart uses Morningstar’s Size Score and Value-Growth Score to identify the ETF’s style. A few of our favorites at the lower end of the asset spectrum are summarized below.

PowerShares FTSE RAFI Emerg. Mkts. (PXH) and Schwab Fundamental Emerg. Mkts. Lg. Co. (FNDE)

While using different methodologies, both these ETFs rely on fundamental indexing from Research Affiliates. They represent the two best ways to gain pure value exposure across emerging markets.

SPDR MSCI Emerging Mkts. Strategic Factors (QEMM)

QEMM isn’t large, but its methodology seems sound. It blends an emphasis on value, low volatility, and quality. The mixture produces an ETF with similar valuations to the index. Its quality level is notably higher and its volatility lower than most ETFs on the page.

Columbia Emerging Markets Consumer (ECON)

Its name changed when EG Shares was purchased, but its objective remains focused on selecting 30 stocks in consumer sectors. It is the easiest way to gain access to a key growth story in emerging markets.

FlexShares Mstar Emerg. Mkts. Factor Tilt (TLTE)

TLTE owns around 2,275 names, which is more than IEMG. The large number of holdings stems from its goal of tilting towards small-cap and value stocks within emerging markets. While not as tilted towards value as the fundamental ETFs, it has a much lower score and gives an excellent, diversified approach.

Scott Kubie is the Chief Strategist at CLS Investments, which is a participant in the ETF Strategist Channel.
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This information is prepared for general information only.  Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such.  All opinions expressed herein are subject to change without notice. The graphs and charts contained in this work are for informational purposes only.  No graph or chart should be regarded as a guide to investing. While some CLS portfolios may contain one or more of the specific funds mentioned, CLS is not making any comment as to the suitability of these, or any investment product for use in any portfolio.