Accessing Global EM Opportunities with a Smart Beta ETF

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The emerging markets are beginning to stand out on the global stage, outperforming developed markets, and exchange traded fund investors are jumping on the opportunity.

For instance, Glovista Investments sees potential growth in the emerging market equity story. Their strategy involves a global macro approach to emerging markets with a deep value tilt, combining a top-down macro approach with quantitative bottom-up-analysis.

"Most academic and industry studies have shown that upwards of 50% of alpha that you can generate in emerging market equities derives from macro factors, so that's the differentiating factor and the main focus of our approach," Carlos Asilis, CIO and Co-Founder of Glovista Investment, said at the Inside ETFs 2018 conference.

Glovista's strategy is implemented entirely using large liquid US-listed country & sector ETFs and ADRs. The typical portfolio consists of 90% to 95% allocation to country ETFs that represent more than 400 underlying stocks.

The money manager has also partnered up with Virtus ETF Solutions, a unit of Virtus Investment Partners, Inc. (NASDAQ: VRTS), to launch the Virtus Glovista Emerging Markets ETF (NYSEARCA: EMEM) late last year.

EMEM represents a smart beta departure from traditional, cap-weighted emerging markets ETFs, which are usually heavily allocated to small number of countries since EMEM caps single-country allocations at 10%. Additionally, macro, fundamental and momentum factors are used in the securities selection process in EMEM. Stocks from the top five countries are overweighted while the bottom five countries in the fund’s geographic screen are eliminated.

"What the ETF does is that it encapsulates the process that we've been using for the last 20 years," Asilis added.

For more ETF-related commentary from Tom Lydon and other industry experts, visit our video category.

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