International stocks have long frustrated investors. The same is true of many of basic, multi-country exchange traded funds in this category. However, alternative weighting approaches could potentially deliver better outcomes. Consider the Invesco International Developed Dynamic Multifactor ETF (IMFL ).
As its name implies, IMFL uses a multifactor approach to provide exposure to a basket of developed market equities. The fund tracks the FTSE Developed ex US Invesco Dynamic Multifactor Index. The factors emphasized by the fund can include low volatility, momentum, quality, size, and value, according to Invesco.
Cap-weighted funds reflect the market’s collective wisdom. Meanwhile, multifactor offerings such as IMFL can unearth compelling opportunities, particularly with international stocks, that may be underrepresented in cap-weighted ETFs.
Investigating IMFL's Advantages
The $298.2 million IMFL turned three years old last month and holds 626 stocks. Relative to traditional developed international ETFs, the Invesco fund is significantly overweight Japan. The fund allocates 34.13% of its weight to that country. That’s potentially advantageous when Japanese stocks are hitting records even as the country grapples with a mild recession.
“The country has finally broken out of its 34-year bear market, with a benchmark equity index up an impressive 17% year-to-date. Its nominal economic growth, inflation, and wages are returning to healthier levels amid government reforms that are driving improvements in corporate margins and shareholder equity returns,” noted Lisa Shallett of Morgan Stanley Wealth Management.
IMFL devotes 10.15% of its roster to South Korea. Some market observers believe the Asian country could follow a trajectory similar to Japan’s equity markets. That remains to be seen. But South Korea does offer the benefits of being less volatile than many comparably sized Asia-Pacific economies. And it’s a tech-heavy economy at that.
Europe – a region that’s long vexed U.S. investors – could finally be ready to deliver for investors. That could be a positive for IMFL.
“The European Central Bank is expected to begin easing monetary policy to stem recessionary conditions in the region,” added Shallett. “Plus, with 18 of 31 NATO countries now committing their agreed-upon 2% of GDP to defense spending in light of the Russia-Ukraine conflict, defense budgets are up more than 60% from a decade ago, at $380 billion. This spending, together with advances in artificial intelligence and progress toward decarbonization, is likely to fuel strong capital investment in related projects by governments and private companies.”
Her comments about defense and decarbonization spending are relevant to investors considering IMFL because the ETF allocates 26.51% of its weight to industrials – its largest sector exposure.
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