Factor Based Funds With an International Twist

By Ronald Delegge

October 27, 2014 at 08:00 PM

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The trend of rules-based or factor in vesting has already invaded domestic equity ETFs and now it's spreading into international markets.

In mid-September, State Street Global Advisors (SSGA), manager of the SPDR ETFs, unveiled the following trio of single-country ETFs: SPDR MSCI Mexico Quality Mix ETF (QMEX), SPDR MSCI South Korea Quality Mix ETF (QKOR) and SPDR MSCI Taiwan Quality Mix ETF (QTWN).

The funds are linked to MSCI indexes that screen companies based upon quality, value and low volatility. "A 'quality' style of investing emphasizes companies with high returns, stable earnings, and low financial leverage," noted the SPDR website.

The idea is to give investors improved risk-adjusted return potential when investing in single-country markets.

"Multi-factor advanced beta strategies combine factor tilts that can help achieve diversification by using factors that have shown negative or low correlation," stated James Ross, executive vice president and global head of SPDR Exchange Traded Funds at SSgA. "Our new SPDR MSCI Quality Mix ETFs provide investors with an opportunity to fine-tune their international exposure with a single-country portfolio that captures multiple investment themes."

Factor based ETFs, also referred to by the label "smart beta," deviate from the traditional cap-weighted model and instead weight indices or securities based on alternative rules-based methods.

The three new SPDR MSCI Quality Mix ETFs have annual expense ratios of 0.40% and join the existing nine multi-factor SPDR MSCI Quality Mix ETFs.

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