Investors looking for exposure to international equities without the potential pitfalls of strategies that weight stocks by market capitalization have a growing number of exchange traded funds to consider. An interesting name in that group is the iShares Edge MSCI Multifactor Intl ETF (NYSEArca: INTF).
Through a multi-factored approach, INTF attempts to deliver enhanced returns and maximize diversification in an attempt to provide potentially improved risk-adjusted returns, compared to traditional market-capitalization-weighted indices.
Specifically, some argue that cap-weighted indices may put an investor at risk of chasing a rally since the best performing stocks would gain the most assets and typically have the largest weight in an index.
INTF “seeks to track the investment results of an index composed of global developed market large- and mid-capitalization stocks, excluding the U.S., that have favorable exposure to target style factors subject to constraints,” according to iShares.
Up nearly 14% year-to-date, INTF hit an all-time high Tuesday. The ETF debuted just over two years ago and its assets under management total is fast-approaching $245 million.
The quality metric may define stocks based on consistency in earnings and balance sheet strength. Historically, high-quality stocks have outperformed lower-quality names since speculators may engage in lottery-like behavior.
The momentum theme helps investors target stocks with higher relative performance that may continue to maintain its strong performance over the near-term.
The value strategy has been a long-standing investment theme, favoring stocks that are relatively cheap to fundamentals. Value stocks have also historically outperformed growth stocks over the long-term.
INTF can be an alternative to traditional EAFE exposure because the smart beta ETF’s country weights are similar. For example, INTF allocates a combined 53% of its geographic weight to Japan, the U.K. and Switzerland. Overall, 15 countries are represented in the ETF. Ten of those countries are European and six are Eurozone members.
INTF has a small-cap counterpart in the form of the iShares FactorSelect MSCI Intl Small-Cap ETF (NYSEArca: ISCF). That new ETF follows the MSCI World exUSA SmallCap Diversified Multi-Factor Index. ISCF holds almost 660 stocks and like INTF, its large-cap peer, ISCF is heavy on Japanese and British stocks as those countries combine for over ISCF’s weight.
For more information on smart beta ETFs, visit our smart beta category.