What is RODE? (Pros, Cons, and Strategies)

In today’s global financial environment, diversifying investments across international markets is increasingly essential. The Hartford Multifactor Diversified International ETF, commonly referred to as RODE, offers an optimal pathway for those looking to balance their portfolios with international equity exposure. In this post, we will delve into what RODE is, its key features, the pros and cons, and strategic approaches for investing in this ETF.

What is RODE?

RODE is a diversified international equity ETF that seeks to deliver returns by investing in a range of companies outside the United States. Managed by Hartford Funds, RODE aims to provide a balanced investment opportunity by considering multi-factor criteria, including value, momentum, and low volatility.

Key Features of RODE

• Diversified exposure to developed and emerging international markets
• Targets investments through a multifactor approach, focusing on value, momentum, and low volatility
• Rebalancing occurs quarterly to adjust for market changes and strategic objectives

RODE's multifactor strategy selects stocks based on fundamental characteristics, aiming to enhance returns while managing risk. This makes RODE suitable for investors seeking international diversification with a mindful approach to volatility.

RODE Composition

RODE typically includes a mix of companies from various sectors and regions, focusing on both developed markets like Japan and Germany, and emerging markets such as China and Brazil. This diversified approach helps to buffer against regional economic downturns. Notable sectors within RODE include financials, industrials, and consumer staples, ensuring a broad but strategically focused international portfolio.

Pros of RODE

Diversified International Exposure

RODE offers investors exposure to a variety of international markets, mitigating risks associated with investing solely in U.S. equities. This diversified approach allows investors to capitalize on growth opportunities in different regions while reducing dependency on a single economy.

Multifactor Strategy

Investing through a multifactor lens helps to balance growth potential and risk. By focusing on value (undervalued companies), momentum (companies with upward price trends), and low volatility (companies with stable stock prices), RODE aims to provide steady returns.

Quarterly Rebalancing

RODE’s portfolio is rebalanced quarterly to ensure alignment with its strategic objectives. This frequent rebalancing allows the ETF to adjust to market shifts, thereby optimizing performance and managing risks effectively.

Relatively Low Expense Ratio

RODE offers a competitive expense ratio, making it a cost-effective choice for investors. Keeping expense ratios low is particularly beneficial for long-term holdings, as it maximizes the net returns by minimizing the costs associated with managing the ETF.

Cons of RODE

Currency Risk

One inherent risk of investing in international equities is currency fluctuation. Changes in the strength of the U.S. dollar relative to foreign currencies can impact the returns on international investments. Although RODE offers geographic diversification, currency risk remains a significant consideration.

Lower Dividend Yield

RODE may not offer high dividend yields compared to some other international ETFs focusing solely on high-dividend stocks. Investors seeking higher immediate income from dividends might find RODE’s yield underwhelming.

Market Volatility

While the multifactor strategy inherently aims to manage volatility, RODE still remains susceptible to significant market swings, especially in regions with less stable economic conditions. Emerging markets, in particular, can be more volatile than developed markets, posing potential risks.

RODE Investment Strategies

RODE can be a valuable component of a diversified investment portfolio, particularly for those aiming to gain exposure to international markets with a balanced approach to risk and return.

Long-term Growth Strategy

For investors with a horizon of 10 years or more, integrating RODE into a long-term growth strategy can be highly beneficial. The diversification across regions and the multifactor approach can yield favorable returns over the long term while efficiently managing risk.

Complementary Investment

RODE can serve as a complementary addition to an existing portfolio dominated by U.S. equities or high-dividend ETFs. By including RODE, investors introduce an international dimension that can enhance overall portfolio resilience against domestic market downturns.

Periodic Investments and Rebalancing

Investors can optimize returns by making regular investments in RODE and periodically rebalancing their entire portfolio. This practice aligns with the ETF's own quarterly rebalancing, ensuring that investments remain aligned with changing market conditions and personal financial goals.

Mitigating Currency Risk

To address currency risk, investors might consider pairing RODE with hedging strategies or other investments that benefit from a strong U.S. dollar. Monitoring currency trends and adjusting exposure accordingly can also help mitigate this risk.

Conclusion

RODE offers a versatile and strategically sound option for international diversification. With its multifactor investment strategy and consistent rebalancing, it presents an appealing opportunity for long-term growth while managing risk. However, investors should remain aware of potential drawbacks such as currency risk and market volatility. By employing thoughtful strategies and maintaining a diversified portfolio, RODE can be a crucial component in achieving robust financial health.