Emerging markets generally have more risk than developed markets. However, there’s a lot of variation in returns among funds representing the space, including the multifactor funds.
For example, the Hartford Multifactor Emerging Markets ETF (ROAM) has demonstrated strong performance this year, outperforming not just its plain vanilla counterparts but also its largest multifactor competitors. Additionally, it looks like its unique factor cocktail and construction are the reasons for its above-and-beyond returns.
ROAM is already up 10.3% year-to-date, while the iShares Core MSCI Emerging Markets ETF (IEMG) is up 7.2%.
The Hartford Funds ETF’s methodology targets the value, momentum, and quality factors while aiming to dampen volatility by 15%. Presumably, it’s the highlighting of those specific factors that has led to the fund’s outperformance.
That said, ROAM has dramatically outperformed the JPMorgan Diversified Return Emerging Markets Equity ETF (JPEM), delivering more than double that fund’s return year-to-date. JPEM is up 4.6% during the period, which makes it the worst performer of the funds reviewed in this article. It is also one of the few multifactor emerging markets ETFs to target the same factors as ROAM.
Further, while ROAM looks to reduce volatility by 15% over the course of an entire market cycle, JPEM also takes into account volatility, adjusting weights of regions and sectors based on historical volatility with an eye to balancing risk in the portfolio.
However, there are some more noticeable differences between the two. While ROAM rebalances twice per year, JPEM rebalances quarterly. JPEM also has a couple hundred more holdings in its portfolio than ROAM.
Looking inside the portfolios for each fund unveils some key differences. There are only two securities in common between ROAM and JPEM’s top 10 holdings: America Movil SAB de CV and Bank of China. Further, the funds have some very different sector breakdowns.
Finance is the biggest sector for both ETFs, at almost 20% and 23% for JPEM and ROAM, respectively. ROAM also has a much larger allocation to Electronic Technology, its second-largest sector, at more than 17% versus 3.4% for JPEM. Additionally, JPEM’s second-largest sector is Consumer Non-Durables, with a weighting of less than 10%. Technology has been one of the best-performing sectors year-to-date, so ROAM’s extra weighting there has likely been a major contributor to its performance.
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