RWEM targets emerging market stocks using a multifactor approach that goes beyond traditional value and momentum screens. The fund aims to capture the next generation of EM winners by incorporating alternative data and machine learning techniques to identify companies with improving fundamentals.
How It Works
The ETF employs a proprietary multifactor model that combines traditional metrics like quality and value with alternative data signals including sentiment analysis and supply chain positioning. Holdings are weighted by factor scores rather than market cap, with quarterly rebalancing to maintain factor exposures. The portfolio typically holds 150-300 stocks across all major emerging markets, with China often representing 30-40% of assets.
Key Features
- Uses alternative data and ML models beyond traditional factor investing approaches
- Active share typically 70%+ versus standard EM indices like MSCI EM
- No currency hedging - full exposure to local currency movements
Risks
- Factor models can underperform for years - value strategies lagged growth by 40%+ in recent EM cycles
- Unhedged currency risk could subtract 10-15% in dollar strengthening periods
- China concentration means regulatory crackdowns could hit 30-40% of portfolio overnight
Who Should Own This
Best suited for investors who believe traditional EM indices are too backward-looking and want exposure to data-driven stock selection. Works as a satellite position (10-20% of EM allocation) for those comfortable with tracking error versus benchmarks. Not appropriate for investors needing to closely track MSCI EM returns.