Strength in the U.S. dollar is hampering myriad assets, including emerging markets equities. Factor-based strategies, including the FlexShares Morningstar Emerging Markets Factor Tilt Index Fund (NYSEArca: TLTE), can provide investors with unique opportunities to buy the dip in developing economies.
The “tilt” in TLTE is away from large-caps and towards higher allocations to mid- and small-caps than are seen in most diversified emerging markets ETFs. That strategy has proven advantageous in years in which state-controlled firms have been laggards.
“We think concerns about a broader problem across emerging markets are overblown,” said FlexShares in a recent research note. “The recent dollar strength (up 2% year-to-date) has been muted compared with the weakness seen in 2017 (down 10%)2 — and we believe the largest emerging markets are in much stronger positions than during the Asian financial crisis of 1997.”
TLTE Holds Over 2,400 Stocks
The $708.3 million TLTE holds over 2,400 stocks, a massive lineup compared to some cap-weighted emerging markets exchange traded funds. Confirming the market cap tilt, over 42% of TLTE’s holdings are classified as small- or micro-cap names. The weighted average market capitalization of the ETF’s holdings is $47.4 billion.