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

In a globally diversified investment portfolio, having exposure to developed markets outside the U.S. is crucial. One way to achieve this is through ETFs like RODM. RODM stands for the Hartford Multifactor Developed Markets (ex-US) ETF, which is designed to provide international developed markets exposure with a multifactor approach. Today, we'll delve into what RODM is, along with its advantages, disadvantages, and strategic approaches for investing in it.

What is RODM?

RODM, or the Hartford Multifactor Developed Markets (ex-US) ETF, tracks the returns of the developed markets outside of the United States. Managed by Lattice Strategies, LLC, RODM is designed to capture diversified returns across different countries while focusing on multiple factors that drive performance.

Key Features of RODM

• Geographic Diversification: Provides exposure to developed markets excluding the U.S., such as Europe, Japan, Australia, and Canada.
• Multifactor Model: Utilizes quality, value, and momentum factors to select its portfolio.
• Risk Management: Employs a risk-balanced approach to mitigate concentration risks and enhance return potential.

RODM Composition

RODM invests in a broad range of companies across various sectors and countries. It includes firms like Nestle (NESN), Novartis (NOVN), and HSBC Holdings (HSBA). By focusing on multiple factors such as quality, value, and momentum, RODM aims to construct a portfolio that can provide superior risk-adjusted returns compared to a market-cap-weighted index.

Pros of RODM

Geographic Diversification

One of the primary benefits of RODM is its geographic diversification. Exposure to developed markets outside the U.S. can provide a hedge against domestic economic fluctuations and enhance the overall stability of your investment portfolio.

Multifactor Approach

RODM employs a multifactor strategy that focuses on quality, value, and momentum. This approach aims to smooth out returns by investing in fundamentally strong companies that are attractively valued and exhibit positive price performance.

Enhanced Risk Management

The ETF is designed to manage risk more effectively by balancing exposure to various sectors and countries, thus avoiding concentration risk. This feature is particularly appealing for long-term investors who seek stable returns without taking on excessive risk.

Cons of RODM

Higher Expense Ratio

One downside of RODM is its higher expense ratio compared to plain-vanilla international ETFs. Its multifactor approach and active management result in a slightly elevated cost, which can eat into your overall returns.

Currency Risk

As RODM invests in foreign markets, it is exposed to currency risk. Fluctuations in exchange rates can affect the performance of the ETF, adding another layer of risk for investors to consider.

Lower Dividend Yield

While RODM offers attractive growth potential through its multifactor strategy, its dividend yield is generally lower compared to U.S.-focused alternatives. This makes it less appealing for income-focused investors.

RODM Investment Strategies

RODM is a compelling option for investors looking for diversified exposure to international developed markets using a multifactor approach. Here are some strategies to make the most out of your RODM investment.

Long-term Investment Strategy

Given the multifactor approach and geographic diversification, RODM is best suited for long-term investors. Holding RODM for at least 5 to 10 years can provide the full benefits of its multifactor strategy and risk management features. Long-term investors are better positioned to endure short-term market volatility and benefit from the growth potential of developed markets.

Diversification Strategy

RODM can be a valuable addition to a diversified portfolio. Pairing it with U.S. equity ETFs, emerging markets ETFs, and other asset classes can create a well-rounded portfolio. This diversified approach can help manage risk while enhancing the potential for returns.

Reallocation and Rebalancing

To maximize the benefits of RODM, periodic reallocation and rebalancing of your portfolio is essential. This ensures that your investment remains aligned with your long-term financial goals and risk tolerance. Regularly reviewing and adjusting your allocations between U.S. stocks, international equities, bonds, and other assets can help maintain the desired risk-return profile of your portfolio.

Conclusion

RODM stands out as a multifactor ETF designed to provide diversified exposure to developed markets outside the U.S. Its balanced approach focusing on quality, value, and momentum factors, along with its risk management features, make it an attractive option for long-term investors. However, the higher expense ratio, currency risk, and lower dividend yield should be considered before investing. By incorporating RODM into a diversified and well-balanced investment strategy, investors can capture the growth potential of international developed markets while managing risk effectively.