U.S. stocks are impressive this year, but China is really asserting itself as a leader among major global equity markets. Stocks in the world’s second-largest economy are helping diversified emerging markets ETFs, including the FlexShares Morningstar Emerging Markets Factor Tilt Index Fund (NYSEArca: TLTE), turn for the better.
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.
“The CSI 300 Index has 79% of its members trading above their 200-day moving average, almost twice the five-year average,” reports Bloomberg. “By contrast, the figure for the S&P 500 Index is 62%, a sign of fewer stocks buttressing the rally there. The proportion is 86% for the ChiNext Index, versus about 50% for the Nasdaq Composite.”
TLTE seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Morningstar® Emerging Markets Factor Tilt IndexSM. The index is designed to reflect the performance of a selection of companies that, in aggregate, possess greater exposure to size and value factors relative to the Morningstar Emerging Markets Index, a float-adjusted market-capitalization weighted index of companies incorporated in emerging-market countries.
“Technology and related sectors have powered the S&P 500 to multiple highs this year but the rally has been concentrated in a handful of stocks that investors see as well-suited for a stay-at-home economy,” according to Bloomberg. “In China, the rebound from the March lows has spread to laggards including industrials and materials, a trend that is consistent with a recuperating economy.”
TLTE’s large weight to China, one of this year’s best-performing major equity markets, could be a boon for patient investors. TLTE helps investors steer clear of frothy valuations. TLTE assigns a value score based on price/book ratio, price/earnings ratio, price/cash flow ratio, price/sales ratio, and dividend yield. Selected securities are then divided by thirds into the following categories: value, core, and growth—all applied to the market cap categories—large cap, mid-cap, and small cap allocations.
Indicating that there could be more upside ahead for TLTE, “China’s economy gathered momentum in August as a strong industrial sector, better business confidence and a recovery in home and car sales combined to help the nation become the first globally to emerge from the Covid-19 slump,” according to Bloomberg.
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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.