With more looking to foreign markets as a way to diversify away from U.S. equities, investors will face certain risks associated with international exposure. Nevertheless, there are a number of smart beta global exchange traded fund strategies that can help investors better manage risks.
Most investors would typically turn to a traditional, beta index fund strategy to garner global market exposure. However, these market cap-weighted indexing methodologies may cause investors to become exposed to some of the largest companies that have grown the most or become too focused on only a handful of countries.
“Emerging market cap-weighting has very lopsided exposure,” Theodore Lucas, Head of Systematic Strategies and ETFs at Hartford Funds, told ETF Trends in a call, pointing out that major index providers like MSCI are overweight China, South Korea and Taiwan.
The MSCI Emerging Markets Index includes a heavy 28% toward China, along with 15% South Korea and 12% Taiwan.
Alternatively, a smart-beta, multi-factor emerging market indexing methodology, such as one found in the Hartford Multifactor Emerging Markets ETF (NYSEArca: ROAM), could provide more exposure to less mature economies with a greater potential for further growth. ROAM’s top country holdings include Taiwan 10.2%, South Korea 9.4%, Thailand 8.3%, Malaysia 7.6% and Indonesia 7.2%.