China’s ambitious Belt and Road Initiative is one of the ways the country looks to invest in emerging markets, opening up opportunity for the FlexShares Emerging Markets Quality Low Volatility Index Fund (QLVE ).
Launched in 2013, the Belt and Road Initiative represents just one of the mechanisms by which China is looking to gain more economic and political influence. The rail, road, and sea infrastructure plan spans 70 countries in Asia, Europe, and Africa.
As a South China Morning Post article noted, “China has a strong foothold when it comes to investing in emerging markets – a trend that is likely to be reinforced under the Belt and Road Initiative, while Chinese policy banks are among the largest creditors to the developing economies.”
“The markets there for hi-tech products are less competitive than those of developed nations. They are relatively easy for Chinese brand hi-tech products to penetrate. Chinese branded hi-tech products with low prices, and not state-of-the-art technology, match perfectly with the demands of those countries, whose income determines what they can afford,” said Xing Yuqing, an economics professor with the National Graduate Institute for Policy Studies in Tokyo.
China represents 27% of QLVE’s country breakdown. The fund seeks investment results that correspond generally to the price and yield performance of the Northern Trust Emerging Markets Quality Low Volatility Index, which is designed to reflect the performance of a selection of companies that, in aggregate, possess lower overall absolute volatility characteristics relative to a broad universe of securities domiciled in emerging market countries.
Low Volatility Exposure
Aside from its low volatility component, one of the key features of QLVE is its ability to still capture upside when markets are trending higher. While the fund chooses equities that exhibit low volatility characteristics, it doesn’t mean that positive performance is sacrificed in the process.
“Low-volatility strategies can be a helpful defensive strategy for investors who want to reduce potential portfolio declines during market downturns, while still capturing some of the gains that come during positive markets,” a FlexShares Fund Focus article noted. “We believe that the FlexShares Emerging Markets Quality Low Volatility Index Fund (QLVE), which incorporates our research-driven findings about the role of quality in a stock’s potential volatility, can help investors meet their risk management and capital appreciation goals.”
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