Market Overview

Factor In Factors For Emerging Markets Exposure

Factor In Factors For Emerging Markets Exposure

Thanks a spate of new product launches dating back to last year, factor-based investing as it pertains to exchange-traded funds is receiving renewed attention. Add to that, many of the new factor-based ETFs that are coming to market emphasize multiple factors in an effort to ensure investors do not miss out on a particular factor when it is thriving.

A New Factor-Based ETF

The Deutsche X-trackers FTSE Emerging Comprehensive Factor ETF (NYSE: DEMG), which debuted last month, is part of that group. DEMG follows the FTSE Emerging Comprehensive Factor Index, a benchmark emphasizing low volatility, momentum, quality, size and value factors.

Factors such as low volatility, quality and value are working with U.S.-focused ETFs, leaving investors to ponder if the application of these factors to developing world equities is working as well.

Related Link: Quality Works For This Emerging Markets ETF

“Further analysis by FTSE Russell through its global factor indexes shows that the upward trend for emerging markets during this time period has been influenced by five major market factors; momentum, size, quality, value and low volatility. In fact, the FTSE Emerging Comprehensive Factor Index, which measures emerging markets equities through these five factors, has returned 9.2 percent year-to-date,” according to FTSE Russell.

Country Weights

DEMG holds nearly 700 stocks, with its largest country weight being South Africa. That is a departure from standard emerging markets ETFs, which usually feature decent exposure to Africa's second-largest economy, but not anything on par with DEMG's 15.8 percent weight to the country. However, with precious metals prices rebounding, a South Africa overweight is working in DEMG's favor.

China and Taiwan combine for 28 percent of DEMG's weight. The ETF's exposure to Taiwan, its third-largest country weight, could be seen as part of the low volatility factor at play because Taiwan is one of the least volatile developing markets.

“Investor demand and market sentiment for emerging markets has increased significantly over the past few months. In addition, investors have increasingly been adopting a factor approach to investing in markets through ETFs. The FTSE Emerging Comprehensive Factor Index brings these two trends together through the selection and weighting of emerging market stocks in an economically intuitive way based on years of cutting edge financial research,” said Deutsche Asset Management's Dodd Kittsley.

DEMG charges 0.5 percent a year, or $50 per $10,000 invested.


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