Optimize International Exposure for Current Opportunities

Now is an opportune time for investors with home country biases to add international exposure.

With international stocks trading at a discount relative to past valuations, there is significant upside opportunity. Investors can find even more attractive valuation attributes by focusing on international value and international small caps.

“When adding international equity exposure, many advisors focus on the mega-cap companies. However, one of the benefits of using ETFs is the chance to add undervalued, smaller companies in a diversified portfolio,” Todd Rosenbluth, head of research at VettaFi, said.

Rosenbluth said the undervalued, smaller companies tend to be more exposed to the local economy.

See more: “Value ETFs Have a Critical Role to Play in Portfolios

History suggests a value and small size bias when investing internationally might be favorable in the current environment. International value and international small cap have historically benefited from above-trend but declining inflation. They have also historically benefitted during early cycle expansions, according to Hartford Funds.

Three funds to consider that offer international exposure and target undervalued, smaller companies include the Hartford Multifactor Diversified International ETF (RODE), the Hartford Multifactor Developed Markets (ex-US) ETF (RODM), and the Hartford Multifactor Emerging Markets ETF (ROAM).

Comparing Funds Offering International Exposure

RODE provides exposure to both emerging markets and developed non-U.S. equities. The fund comprises 58% large-cap equities, 36% mid caps, and nearly 6% small caps, according to ETF Database. Conversely, the benchmark MSCI ACWI ex USA Index (tracked by the iShares MSCI ACWI ex U.S. ETF [ACWX]) is composed of over 81% large caps, 18% mid caps, and less than 1% small caps.

RODM offers exposure to developed non-U.S. equities. 52% of RODM by weight is in large caps, 46% in mid caps, and 2% in small caps, according to ETF Database. To compare, the iShares Core MSCI International Developed Markets ETF (IDEV) tracks the benchmark MSCI World ex USA Index and comprises 74% large caps, 19% mid caps, and 7% small caps.

See more: “The Advisor’s Guide to the 2 Types of Multifactor ETFs

ROAM offers broad access to emerging market equities, providing exposure by weight to large caps (52%), mid caps (42%), and small caps (5%). The iShares MSCI Emerging Markets ETF (EEM), which tracks the benchmark MSCI Emerging Markets index, comprises 70% large caps, 28% mid caps, and 1% small caps.

RODM, ROAM, and RODE each seek to reduce volatility by targeting a 15% volatility reduction over a complete market cycle.

For more news, information, and analysis, visit the Multifactor Channel

Investing involves risk, including the possible loss of principal.

This article was prepared as part of Hartford Funds paid sponsorship with VettaFi. Hartford Funds is not affiliated with VettaFi and was not involved in drafting this article. The opinions and forecasts expressed are solely those of VettaFi. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, a recommendation for any product, or as investment advice.