How Multifactor ETFs Can Provide International Exposure While Limiting Volatility | Page 2 of 2 | ETF Trends

Furthermore, with currency playing a major factor in the performance of international ETFs, a rising dollar hasn’t boded well for markets overseas with interest rate hikes instituted by the Federal Reserve–four total–in 2018.

Nonetheless, with the latest volatility steering investors off course near the end of 2018, opportunities abroad could be an alternative. Despite the deep declines in international and emerging markets in 2018, with respect to value compared to price, many of these ETFs from abroad present a profitable opportunity that can be realized, especially if China and the U.S. ameliorate their trade differences.

Hartford’s Systematic Approach

Investors looking for a rules-based, systematic approach to their international investment exposure can choose between ROAM, RODM and ROGS. Each ETF provides international exposure while cornering a specific market focus:

  • ROAM: The investment seeks to provide investment results that correspond to the total return performance of the Hartford Risk-Optimized Multifactor Emerging Markets Index. The fund generally invests at least 80% of its assets in securities of the index and in depositary receipts (such as American Depositary Receipts (“ADRs”), Global Depositary Receipts (“GDRs”) and European Depositary Receipts (“EDRs”) representing securities of the index. The index is designed to balance risks and opportunities within equity markets of emerging economies while emphasizing constituents exhibiting a favorable combination of factor characteristics.
  • RODM: The investment seeks to provide investment results that correspond to the total return performance of the Hartford Risk-Optimized Multifactor Developed Markets (ex-US) Index. The fund generally invests at least 80% of its assets in securities included in the index and in depositary receipts representing securities included in the index. The index is designed to address risks and opportunities within developed international economies outside the U.S. by selecting equity securities of companies domiciled within developed international equity markets exhibiting a favorable combination of factor characteristics.
  • ROGS: The investment seeks to provide seeks to provide investment results that correspond to the total return performance of the Hartford Risk-Optimized Multifactor Global Small Cap Index. The fund generally invests at least 80 percent of its assets in securities of the index and in depositary receipts representing securities of the index. The index is designed to address risks and opportunities within the global small cap universe by selecting equity securities of companies exhibiting a favorable combination of factor characteristics, including valuation, momentum, and quality.

Hartford’s approach to all three ETFs address the following factors in order to achieve the best possible return:

  1. Setting Parameters for Risk: Seek to improve diversification versus a cap-weighted benchmark by reducing concentration at the country, sector, and individual company levels
  2. Selecting Securities: Seek companies with a favorable combination of low valuation (50%), high momentum (30%), and high quality (20%) investment factors
  3. Reconstituting and Rebalancing Holdings: Rebalance twice a year in March and September and reapply the investment process annually in March to ensure the portfolio stays true to the rules-based index methodology

Blunting the Impact of International Volatility

A closer look at ROAM, RODM and ROGS show that despite a challenging 2018, these ETFs were able to blunt the impact of volatility in international markets with respect to the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and Vanguard FTSE Developed Markets ETF (NYSEArca: VEA).These Multifactor ETFs Provide International Exposure While Limiting Volatility

These Multifactor ETFs Provide International Exposure While Limiting Volatility 1

As the market landscape continues to evolve in 2019 with a more dovish Fed alluding to lesser rate hikes in 2019, international market exposure could see an immediate rebound following a challenging 2018. With a low volatility component built into their ETFs, Harford’s ROAM, RODM and ROGS allow investors to capture any upside in international markets while at the same time, limit any volatility and downside continuing from 2018.

For more information on ROAM, RODM, ROGS, and other Hartford ETFs, click here.

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