Investors looking to position for a rebound in international equities may want to consider the fresh approach offered by the Principal International Multi-Factor Core Index ETF (PDEV).
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. 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 signs of life in ex-US stocks and catalysts abound for the asset class, PDEV is appealing over the near-term.
“A torrent of fiscal and monetary stimulus to fight the effects of the coronavirus, combined with already-low interest rates, will contribute to a “Great Debasement” of the U.S. dollar in the years ahead, according to Bank of America Merrill Lynch,” reports Thomas Franck for CNBC. “That, in turn, will make investments in commodities and emerging markets more appealing as investors look for reliable inflation hedges and savvy ways to play a weaker greenback, BofA chief investment strategist Michael Hartnett wrote.”
Allure of PDEV
Through a multi-factored approach, PDEV attempts to deliver enhanced returns and maximize diversification in an attempt to provide potentially improved risk-adjusted returns, compared to traditional market-capitalization-weighted indices.
A weak dollar and the specter of rising inflation could increase the allure of PDEV.
“Central to Hartnett’s thesis is a belief in an uptick in U.S. inflation, a rise in prices and a decline in the purchasing power of each dollar,” according to CNBC. “Inflation can happen in a developed economy for a variety of reasons and, in moderation and around 2%, is considered healthy by the Federal Reserve. Inflation has been low for years and has dipped even more during the pandemic, falling to 1.2% in May as measured by the Fed’s preferred gauge. Central bank officials say inflation is likely to stay low as the economy struggles.”
PDEV’s 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.
Prosaic multi-factor multi-factor ETFs select companies through exposure to a subset of multiple market factors, including low volatility, momentum, quality, size, and value factors. Investors can use these multi-factor strategies to capitalize on the cyclicality of factor performance through a dynamic overlay that screens for leading economic indicators and market sentiment to gauge the current market environment and increase exposure to the areas that tend to fare best in the given conditions.
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.