Talk of emerging markets momentum in 2021 spotlights exchange traded funds such as the FlexShares Emerging Markets Quality Low Volatility Index Fund (QLVE).
QLVE’s quality screen to provide exposure to high-quality companies with lower absolute risk, thereby limiting potential future volatility. The quality screen analyzes a broad universe of equities based on key indicators such as profitability, management efficiency, and cash flow, and then excludes the bottom 20% of stocks with the lowest quality score. The index is then subject to the regional, sector, and risk-factor constraints, in order to manage unintended style factor exposures, significant sector concentration, and high turnover.
With progress being made on the coronavirus vaccine front, more fund managers are eyeing emerging markets equities. One in two say developing economies are their preferred assets for 2021, according to a recent Bank of America survey.
Looking to Emerging Markets ETFs as the Dollar Suffers
“Investment flows tell the same story. EM equity funds, which suffered almost uninterrupted outflows from March to September, have attracted almost $14bn in the past two weeks, according to data provider EPFR. This is mirrored by IIF data on cross-border flows, showing more than $22bn moving into local stock markets so far in November,” reports Jonathan Wheatley for the Financial Times.
China’s resiliency and growth in a year riddled with coronavirus-induced weakness have attracted many equity managers looking for some level of certainty, along with those seeking the flavor-of-the-month pick.
QLVE tilts toward higher-quality fare from that country and others via a combined 41% weight to the technology, communication services, and consumer discretionary sectors.
Investors may also find that the quality low-volatility index strategies, including QLVE, also exhibit lower drawdowns and upside potential compared to indexing methodologies that only focus on low volatility or minimum volatility.
A weaker dollar is a catalyst for emerging markets assets. With interest remaining low in the U.S., the greenback should remain weak again next year. In fact, some analysts believe it will fall as much as 20% in 2021, according to the Financial Times.
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