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

If you're looking to diversify your investment portfolio beyond the U.S. market, the Hartford Multifactor International Small Company ETF (ROIS) might be worth considering. Designed to focus on international small-cap companies, ROIS offers an intriguing investment opportunity for those looking to tap into broader markets. Today, we'll dive into what ROIS is, along with its advantages, disadvantages, and investment strategies.

What is ROIS?

ROIS stands for the Hartford Multifactor International Small Company ETF. Unlike its large-cap counterparts, ROIS is tailored for those who want exposure to small-cap international companies, often considered to have high growth potential.

Key Features of ROIS

ROIS aims to capture the performance of small-cap companies across various developed international markets, excluding the U.S. It leverages a multifactor approach to select companies, focusing on metrics such as:

• Quality: Companies with robust profitability and low financial leverage.
• Value: Companies priced attractively compared to historical fundamentals.
• Momentum: Companies that have shown positive price momentum over the past year.

This diversified approach helps investors benefit from various market conditions while mitigating risks associated with individual factors.

ROIS Composition

ROIS features a broad range of small-cap international companies across various sectors. Its diversified portfolio spreads across multiple industries like technology, healthcare, industrials, and consumer goods, minimizing sector-specific risks. Predominantly, ROIS is composed of firms that might not be household names but hold substantial growth potential in their respective markets.

Pros of ROIS

Diversification

Investing in ROIS allows you to diversify your portfolio geographically and by market capitalization. While the U.S. markets have been spectacular, there are growth opportunities globally that are captured by investing in international small-cap companies.

Growth Potential

Small-cap stocks, especially in developing international markets, often have higher growth potential compared to large-cap stocks. By investing in ROIS, you have a chance to capitalize on this accelerated growth trajectory.

Multifactor Approach

The multifactor approach in ROIS helps in balancing the portfolio across various indicators. By including factors like quality, value, and momentum, ROIS aims to provide a more stable return over time, reducing the volatility associated with investing purely in one metric or another.

Risk Mitigation

Due to its international and diversified nature, ROIS can help mitigate country-specific risks. Economic downturns in one region might be offset by growth in another, providing a buffer against localized market downturns.

Cons of ROIS

Higher Volatility

Small-cap stocks generally experience higher volatility compared to their large-cap counterparts. While this can lead to higher growth, it also means greater price swings, which may not be suitable for all investors.

Limited Information

International small-cap stocks often have less publicly available information compared to U.S. large-cap companies. This can make it harder to assess individual stocks within the ETF comprehensively.

Higher Expense Ratio

ROIS may have a higher expense ratio compared to other ETFs, primarily due to its international focus and multifactor selection process. This can erode returns over the long term.

Currency Risk

Since ROIS invests in companies outside the U.S., there's an inherent currency risk. Fluctuations in foreign exchange rates can affect the value of your investment.

ROIS Investment Strategies

ROIS can be a valuable addition to a diversified portfolio. However, due to its unique focus, it's important to have a well-formulated strategy for investing in this ETF.

Long-term Growth Strategy

If you have a long investment horizon, ROIS could provide significant growth opportunities due to its focus on international small-cap stocks. The idea is to stay invested for a longer period to ride out short-term volatility and benefit from long-term growth.

Diversified Portfolio Approach

ROIS is best used as a complementary investment in a diversified portfolio. It can be paired with other large-cap, domestic, or sector-specific ETFs to balance out risks and optimize returns.

Hedging against U.S. Market Risks

For investors heavily invested in the U.S. market, ROIS offers a way to hedge against local economic downturns. By diversifying into international small-cap stocks, you can lower the overall risk of your portfolio.

Regular Investment and Rebalancing

Like other ETFs, a disciplined investment approach involving regular contributions and periodic rebalancing can help maximize returns. Reinvesting dividends and adjusting your investment according to the market condition can leverage the power of compounding over time.

In conclusion, ROIS offers an exciting opportunity for investors looking to diversify and capitalize on international growth potential. While it does come with its set of challenges, careful planning and strategy can make it a valuable part of a well-rounded investment portfolio.