There are signs of life for some international equity markets and that could bring new reason for investors to consider unique approaches to ex-US stocks, including 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.
“The dollar has been dropping, for the first time since 2017, and that’s been good news for US investors in foreign stocks,” reports CityWire. “The case for investing in foreign stocks for US investors has never been simply about getting exposure to the other half of the world’s stock market. It has been also about getting exposure to foreign currencies.”
PDEV Could be Prominent
PDEV, which recently turned a year old, holds nearly 600 stocks and is classified as a large-cap value fund. Value stocks tend to trade at a lower price relative to their fundamentals (including dividends, earnings, and sales). While they generally have solid fundamentals, value stocks may have lost popularity in the market and are considered bargain priced compared with their competitors.
PDEV lacks a currency hedge, which can be advantageous at a time of dollar weakness.
“Instead, because they are investing with US dollars, they are really getting two returns combined – the return of the stocks in their local currencies and the return of the local currencies versus the US dollar,” according to CityWire.
PDEV can potentially provide investors a systematic tilt toward lower historical volatility as a way to offer more stability and better downside protection, along with a highly focused, yet risk-aware, exposure to large-cap names in an attempt to help investors generate better risk-adjusted returns over the long haul.
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.
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.