Getting international exposure is a typical way to get uncorrelated market movements relative to the United States, but at a time when a pandemic has the whole world in its grasp, it becomes a quandary. That’s when it’s time to get smart as in smart beta with multi-factor strategies used in ETFs like the Xtrackers FTSE Developed ex US Comprehensive Factor ETF (DEEF).

DEEF seeks investment results that correspond generally to the performance of the FTSE Developed ex US Comprehensive Factor Index. The fund will normally invest at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities of issuers from developed markets countries other than the United States.

The index is designed to track the equity market performance of companies in developed countries selected on the investment style criteria of value, momentum, quality, low volatility, and size. The fund has a net expense ratio of 0.24%, which falls below its category average published by Yahoo Finance.

DEEF Chart

DEEF data by YCharts

Why Use Smart Beta?

Because of their advanced strategy, funds like DEEF could fall on the expensive side. As mentioned, however, DEEF offers a smart beta strategy at a relatively low cost, but why choose smart beta?

“Market cap weighted indexes were created to reflect the market or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy,” a Yahoo Finance article explained. “Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient, and transparent way of replicating market returns.”

“On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies–popularly known as smart beta,” the article added.

Using a Comprehensive Factor Approach

Should an investor go with quality, momentum, low volatility, size, or value given today’s current market climate? Why not have it all with multi-factor strategies inherent in ETFs like DEEF.

The fund is never heavy on one particular holding compared to market cap weighted strategies. The Yahoo Finance article further explains why:

“By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such,” the article said.

Furthermore, DEEF’s exposure to only developed markets could help smoothen volatility. Emerging markets (EM) can swing heavily during volatile times as their performance is typically tied to the local currency.

For more news and information, visit the Smart Beta Channel.