Smart-Beta ETFs to Better Manage International Market Exposure

Global markets may provide investors with many opportunities, but they come with their own set of risks. Nevertheless, investors may consider multi-factor, smart-beta international exchange traded funds to diversify into global equities while keeping the swings at a minimum.

When accessing international markets, investors will find many opportunities to capture growth, but they are also exposed to various risks associated with the varying markets.

“Global markets provide diversified risk exposure and diversified sources of return,” Samantha Azzarello, Vice President and Global Market Strategist at J.P. Morgan Asset Management, said on the recent webcast, A Better Way to Access International Markets.

Azzarello pointed out that manufacturing momentum is picking up globally, helped by the global themes of reflation and a shift toward more accommodative fiscal policy.

Corporate earnings are also recovering internationally, which could help make international equities a key component in a diversified portfolio. Azzarello argued that investors may have an opportunity to diversify into international stocks on the cheap as many global markets are trading below their 25-year average price-to-earnings and hovering near the bottom end of their 25-year price-to-book.

In a survey of financial advisors attending the webcast, 32% of respondents pointed to Asia’s stock market as an area of the world that has the most stock potential, followed by 20% looking at Europe and 9% seeing Latin America. While 51% say they will keep their international the same in the year ahead, 43% of those surveyed want to increase their international exposure in 2017.

However, Yasmin Dahya, Vice President of ETF Product Development at J.P. Morgan Asset Management, warned investors that utilizing traditional beta-index or market cap-weighted index strategies could expose investors to undue risks. Instead, investors can take a look at the evolving ETF industry where factor-based investments could help better manage the risk premium.