As international equities finally have their moment in the sun, investors considering global options may want to take a alternative index based or smart beta exchange traded funds that may potentially limit drawdowns and enhance returns over the long-haul.

For instance, the Deutsche X-trackers FTSE Developed ex US Comprehensive Factor ETF (NYSEArca: DEEF) has increased 11.1% year-to-date while the MSCI ACWI ex USA Index gained 10.2% and the S&P 500 rose 7.2%.

Factor-based investments or smart beta strategies combines the low-cost, systematic approach found in passive investments, such as an index-based ETF, with research driven benchmark outperformance found in actively managed portfolios and cutting edge alpha capture in alternative strategies. The smart beta ETFs can be seen as an amalgamation of the best qualities found in passive and active strategies.

For instance, DEEF tries to reflect the performance of the FTSE Developed ex US Comprehensive Factor Index, which includes foreign developed market equities but screens for five factors, including quality, value, momentum, low volatility and size, to help diminish risks and to potentially enhance returns. The quality and low-volatility metrics, for example, help diminish drawdowns during periods of large swings, and the value and size factors have been known to capture excess returns over the long haul.

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