A challenged U.S. market highlights the value of diversification in a portfolio.
Higher for longer interest rates, the automotive strike, high oil prices, and the possibility of a government shutdown again are all current headwinds for the U.S. economy. As U.S. benchmarks continue to fall, investors may want to consider diversifying their risk.
One way investors can enhance diversification is by challenging home country bias. International stocks are not contending with a lot of the same issues as the U.S., helping to diversify risk.
Emerging markets, in particular, are better prepared to deal with inflation and higher rates. These economies have dealt with inflation more frequently than developed markets over the past 25 years.
Over the past few years, emerging economies have responded more quickly to surging inflation, with many countries beginning rate hikes as early as 2021. In response, emerging market countries have observed falling core inflation much earlier than developed market countries.
Use Multifactor ETFs to Get International Exposure
Advisors can enhance diversification while preparing portfolios for higher volatility by allocating to international multifactor ETFs. Multifactor ETFs seek to target desired return-enhancing factors and reduce exposure to unrewarded risk exposures.
RODM provides exposure to developed non-U.S. equities, while ROAM offers broad exposure to emerging market equities. Conversely, RODE provides exposure to both emerging markets and developed non-U.S. equities.
RODM, ROAM, and RODE are well positioned in the current environment as each fund seeks to reduce volatility by 15% over a complete market cycle.
For more news, information, and analysis, visit the Multifactor Channel.
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