Advisors looking for a strategic solution for exposure to international equities have an array of ideas to consider, but one of the more compelling options is the First Trust Dorsey Wright International Focus 5 ETF (NasdaqGM: IFV).
IFV is the international answer to the highly popular First Trust Dorsey Wright Focus 5 ETF (NasdaqGM: FV). IFV is comprised of five First Trust international ETFs displaying positive relative strength ETFs, the same approach FV takes to First Trust sector and industry ETFs.
“Using the DWA relative strength ranking system, the ETFs are compared to each other to determine inclusion by measuring each ETF’s price momentum relative to other ETFs in the universe. Each ETF is given a score that allows DWA to objectively determine where it ranks relative to all other ETFs in the universe,” according to First Trust.
It’s easy to have a home bias when it comes to investing in the capital markets. Yet investors could be missing out on international opportunities superseding U.S. benchmarks like the S&P 500.
Investigating IFV: International Advantages?
Among the current components in IFV are First Trust Switzerland AlphaDEX Fund (NYSEArca: FSZ), First Trust Germany AlphaDEX Fund (NYSEArca: FGM), and the First Trust ISE Chindia Index Fund (NYSEArca: FNI).
IFV investors can use relative strength 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.
Owing to the Federal Reserve’s move to take interest rates to record lows, the U.S. dollar is sagging this year. Greenback weakness doesn’t spell trouble for investors considering international equities. Twenty-two ETFs are eligible for potential inclusion in IFV’s underlying index.
Dorsey Wright’s relative strength analysis is conducted on a weekly basis with ETFs moving out of the index if “when they fall sufficiently out of favor. The index is rebalanced periodically so each position is equally weighted.”
The improved economic conditions have also translated to better earnings expectations for these international markets. According to FactSet data, earnings for companies in the MSCI Emerging Markets Index will fall less than earnings for companies in the S&P 500 index for 2020. Emerging-markets earnings are even expected to rebound more than U.S. earnings in 2021. Overseas developed-market earnings are anticipated to bounce back further than U.S. profits next year as well.
For more on innovative portfolio ideas, visit our Nasdaq Portfolio Solutions 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.