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New International ETF is on the Block

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PGIM investments has launched its fourth actively managed ETF for the year 2018, namely PGIM QMA Strategic Alpha International Equity ETF (PQIN - Free Report) . This ETF is sub-advised by Quantitative Management Associates (QMA) and seeks to achieve long-term growth of capital.

Inside PQIN

It seeks to outperform the returns of the MSCI EAFE Index over the long-term horizon. The fund does this by employing a systematic, proprietary process that selects stocks based on factors such as value, quality and volatility. Per etfdb, Industrials (19%), Financials (12%) and Consumer Discretionary (11%) occupy double-digit allocation sector wise. The fund comprises 494 holdings and has a large-cap bias (70%). Per etfdb, Japan is the sole country with a double-digit target of 35%. United Kingdom has a 9% allocation in the fund.

Since its inception on Dec 4, the fund has amassed $24 million (as of Dec 12) and has an expense ratio of 0.29%.

How Does it Fit into a Portfolio?

Retail sales happen to be a gauge for the strength of private consumption, which accounts for about 60% of the Japanese economy. In October, these grew at the fastest pace since December 2017. Further, the tourism industry got a boost in October as it surged by 1.8% on an annual basis after suffering in September owing to natural calamities (read: Should You Tap Japan ETFs on Strong Retail Sales in October?).

However, Japan’s economy contracted at an annualized rate of 2.5% in the third quarter, more than the initial estimate of 1.2% contraction. Per the published government data, weaker-than-expected capital spending by companies was the primary source behind the contraction in the economy.

These situations raise the opportunity for a smart-beta strategic play. These strategies allow investors an opportunity to diversify their portfolio, reduce risk and earn superior returns over time. Adding extra metrics like value, quality and volatility in security selection help to tap market inefficiencies in a transparent way. This is indicated by the solid interest the fund has garnered among investors in less than 10 days of its launch.  

In a recently published report of International Monetary Fund (IMF), a number of structural reforms have been suggested which coupled with corporate governance reforms and trade liberalization could "boost Japan’s real GDP by as much as 15% in 40 years," in comparison to the baseline view. This is an added advantage of investing in Japan (read: IMF Cuts Global Growth Forecast: ETFs in Focus).

Competition

The  fund will face threats from popular ETFs like Vanguard FTSE Developed Markets ETF (VEA - Free Report) , iShares MSCI EAFE ETF (EFA - Free Report) and iShares Core MSCI EAFE ETF (IEFA - Free Report) .  All these ETFs track the MSCI EAFE index (see: all the Broad Developed ETFs here).

VEA targets the Japan market with 22% allocation followed by United Kingdom (13%). EFA and IEFA have 25% allocation each toward the Japan markets. VEA and IEFA are cheaper bets with an expense ratio of 0.07% and 0.08%, respectively.

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