With market participants speculating that a change in White House occupant could be helpful for ex-U.S. equities, the Principal International Multi-Factor Core Index ETF (PDEV) is a prime example of ETFs that stand to benefit after Election Day.
PDEV is designed to provide broad index-aware developed international equity exposure while incorporating a multi-factor model and modified the weighting process to potentially enhance the risk/return profile. The multi-factor model seeks to identify equity securities of companies in the Nasdaq Developed Market Ex-US Ex-Korea Large Mid Cap IndexSM that exhibit potential for high degrees of sustainable shareholder yield (value), pricing power (quality growth), and strong momentum. The fund’s objective is to track the Nasdaq Developed Select Leaders Core Index.
With more looking to foreign markets as a way to diversify away from U.S. equities, investors will face certain risks associated with international exposure. Nevertheless, there are a number of smart beta global exchange traded fund strategies that can help investors better manage risks.
PDEV Perks: Trimmed Risk, Quality Tilt, and More
Most investors would typically turn to a traditional, beta index fund strategy to garner global market exposure. However, these market cap-weighted indexing methodologies may lead to exposure to some of the largest companies that have grown the most or become too focused on only a handful of countries. For its part, PDEV offers a more bespoke approach to trimming international equity risk than rival cap-weighted beta funds. PDEV also features a quality tilt.
PDEV can potentially provide investors efficient access to international developed stocks with relatively low tracking error to the international developed market. Its innovative factor definitions and combinations may enhance the risk/return profile without significantly differing from the targeted index holdings. Finally, its index-aware design may make PDEV an attractive replacement for passive, cap-weighted, and active strategies.
PDEV is also relevant due to developed Europe exposure. Although the region is grappling with another wave of coronavirus cases, the European Central Bank is willing to support economies there.
“Europe was initially slow in launching policy measures to combat the coronavirus shock. Not any longer,” said BlackRock in a recent note. “An impressive array of fiscal and monetary measures is getting into place to bridge the economy through the shock. In addition, the euro area has had relative success in curbing virus growth, positioning it well for reopening its economy.”
For more on multi-factor strategies, visit our Multi-Factor Channel.
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.