Watch International ETFs as IMF Warns of Rising Global Debt

It’s not just the coronavirus pandemic that investors have to worry about when it comes to international exposure these days. It’s also the rising debt levels, according to the International Monetary Fund (IMF)—a reason to keep a close eye on international exchange-traded funds (ETFs).

Per a National News report, the “International Monetary Fund called on governments to be cautious as they borrow more money to cushion their economies from the blow of the Covid-19 pandemic.” With global debts reaching negative territory in certain parts of the world, it’s an easy draw for countries to simply take on more debt or refinance current debt with lower rates.

The report noted further that public debt equates to “more than 100 percent of global gross domestic product and has surpassed the record level it reached at the end of the Second World War, according to Vitor Gaspar, director of the fund’s fiscal affairs department, and Gita Gopinath, chief economist.”

“The need for continued fiscal support is clear, but this begs the question of how countries can finance it without debt becoming unsustainable,” the IMF executives said in a blog post.

Some international ETFs to watch include the Schwab International Equity ETF (NYSEArca: SCHF) and the SPDR Portfolio Developed World ex-US ETF (SPDW).

A Multi-Factor Approach to International Equities

One way for investors to get multiple factor exposure, as well as international diversification, is via the Principal International Multi-Factor Core Index ETF (PDEV). Using a multi-factor approach like PDEV gives investors exposure to quality companies that can sustain a market downturn as well as provide international diversification.

PDEV seeks to provide investment results that closely correspond to the performance of the Nasdaq Developed Select Leaders Core Index. Under normal circumstances, the fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies that compose the index at the time of purchase.

Furthermore, the index uses a quantitative model designed to identify equity securities of companies in the Nasdaq Developed Market Ex-US Ex-Korea Large Mid Cap Index that exhibit potential for high degrees of sustainable shareholder value, growth, and strong momentum.

Key features of PDEV include:

  • Index aware design: Deviates from traditional cap-weighted indexes, applying a multifactor model and tiered evaluation process.
  • Rules-based framework: Tilts towards securities with high factor scores while diversifying through currency neutrality.
  • Multi-factor construction: Combines three distinct factors – shareholder yield, momentum, and quality growth.

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