First Trust RiverFront Dynamic Emerging Markets ETF (RFEM) seeks to track the RiverFront Dynamic Emerging Markets Index, which uses a proprietary momentum-based methodology to select emerging market stocks showing strong price and earnings momentum trends. This actively-managed approach targets companies across developing economies including China, India, Taiwan, and South Korea.
How It Works
RFEM employs an active, rules-based strategy that screens emerging market stocks using RiverFront's quantitative momentum models, focusing on price momentum, earnings revisions, and technical indicators. The fund typically holds 50-100 positions with quarterly rebalancing to capture changing momentum trends. Portfolio construction emphasizes companies showing accelerating fundamentals and positive technical patterns, with country and sector allocations varying based on momentum signals rather than market capitalization weighting.
Key Features
- Uses proprietary momentum methodology rather than traditional market-cap weighting, potentially capturing emerging market trends earlier than passive alternatives
- Actively managed approach allows tactical allocation shifts between countries and sectors based on quantitative momentum signals
- Focuses on mid- to large-cap emerging market stocks with strong liquidity, avoiding smaller frontier market positions
Risks
- This ETF can lose value when momentum trends reverse suddenly, as the strategy may be concentrated in recently outperforming stocks that become vulnerable to sharp corrections
- Emerging market currency fluctuations can significantly impact returns, with potential 10-20% swings from dollar strength or local currency devaluations during crises
- Political instability, regulatory changes, or economic crises in major emerging markets like China or India could cause 30-50% declines during severe downturns
Who Should Own This
Best suited as a satellite holding (5-15% of equity allocation) for aggressive investors with 3+ year time horizons seeking enhanced emerging market exposure. High risk tolerance required due to momentum strategy volatility and emerging market instability. Appropriate for investors wanting tactical emerging market exposure beyond traditional passive EM index funds.