In theory, that objective should not be difficult in the current environment when emerging markets are, broadly speaking, considered to be value plays. However, some ETFs may be better suited for emerging markets value hunters than others.
The group of preferred options includes the FlexShares Morningstar Emerging Markets Factor Tilt Index Fund (NYSEArca: TLTE). The $424 million TLTE allocates almost 51% of its weight to value stocks, more than triple its exposure to growth names, according to issuer data.
“Emerging markets remain both cheap and attractive, and should benefit from looser monetary conditions and capital flows arising from the Fed’s rate cuts. In addition, markets like Thailand and Vietnam are getting a lift as U.S. companies seek to avoid U.S. tariffs on Chinese goods by shifting supply chains to other Asian countries,” reports Daren Fonda for Barron’s.
The “tilt” in TLTE is away from large-caps and towards higher allocations to mid- and small-caps than are seen in most diversified emerging markets ETFs. That strategy has proven advantageous in years in which state-controlled firms have been laggards.
Time For TLTE
TLTE could provide better risk-adjusted returns than the broader large-cap benchmark. Specifically, its enhanced indexing process would allow the ETF to exclude expensive, low-quality companies with poor momentum.
Factor-based strategies like smart beta ETFs can be used to solve different portfolio needs. For instance, single factors help target exposure to enhance returns or address specific client needs, whereas a multi-factor approach may provide a diversified core equity allocation that leverages the benefits of multiple factors and limit cycle risks associated with individual factors,
Emerging markets have always given investors another look at the global growth landscape, particularly since they could be in different economic phases—for example, the U.S. could be reaching a peak while an emerging market country could be in a growth acceleration phase.
Although TLTE allocates almost 32% of its weight to Chinese stocks, which is reflective of that country’s growing presence in emerging markets funds, the FlexShares ETF devotes over 27% to South and Taiwan, two of the least volatile developing economies.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.