What is UIVM? (Pros, Cons, and Strategies)
When diversifying your investment portfolio, international exposure can be a valuable addition. One popular option among investors seeking value and momentum in international stocks is UIVM, the VictoryShares International Value Momentum ETF. Today, we'll delve into what UIVM is, its pros and cons, and some strategic considerations for investing.
What is UIVM?
UIVM stands for VictoryShares International Value Momentum ETF. It is designed to provide exposure to international equity markets while incorporating a dual strategy focused on both value and momentum.
UIVM tracks the performance of the Nasdaq Victory International Value Momentum Index. This index seeks to identify stocks that appear undervalued by traditional valuation metrics but are also demonstrating positive price momentum.
Key Features of UIVM
- Broad International Exposure: UIVM invests in developed and emerging markets outside the United States.
- Value and Momentum Factors: The ETF aims to capture undervalued stocks that are also exhibiting strong upward price trends.
- Fundamentally Derived Index: Stocks are selected based on fundamental criteria such as price-to-book ratios, earnings yield, and recent price performance.
Pros of UIVM
Diversification
One of the primary advantages of investing in UIVM is diversification. By including international stocks, investors can reduce their reliance on the U.S. market and benefit from potential growth in other regions. This diversification can potentially lower the overall volatility of your investment portfolio.
Value and Momentum Combination
UIVM's strategy of combining value and momentum factors can be particularly appealing. Value investing focuses on buying undervalued stocks, while momentum investing targets stocks with strong recent performance. By incorporating both, UIVM aims to capture the benefits of these two complementary strategies.
Potential for Higher Returns
International markets, especially emerging markets, can offer higher growth potential compared to developed markets. By investing in UIVM, you may gain access to opportunities that are not available through domestic-focused ETFs.
Lower Valuation Multiples
International stocks often trade at lower valuation multiples compared to U.S. stocks. This lower valuation can provide a margin of safety and potentially higher returns if these stocks are re-rated upwards by the market.
Cons of UIVM
Currency Risk
Investing in international markets introduces currency risk. Exchange rate fluctuations can impact the returns of your investments. A strengthening U.S. dollar, for instance, can reduce the value of international holdings when converted back to dollars.
Political and Economic Risks
International investments come with additional risks, such as political instability, economic downturns, and differing regulatory environments. These factors can affect the performance of the underlying stocks in UIVM.
Higher Expense Ratio
UIVM's expense ratio is 0.45%, which is relatively high compared to some broad-market index ETFs. While this fee covers the active strategy combining value and momentum factors, it's essential to consider how it impacts overall returns.
Market Liquidity
International stocks can be less liquid than their U.S. counterparts. Lower liquidity can result in wider bid-ask spreads and potentially higher trading costs, which can affect the ETF's performance.
UIVM Investment Strategies
Given UIVM's unique approach, there are several strategies that investors can consider to maximize their potential returns.
Long-term Investment Strategy
Like other equity-based ETFs, UIVM is best suited for a long-term investment horizon. The combined value and momentum strategy might take time to manifest its full benefits. A holding period of at least 5 to 10 years can help investors ride out short-term volatility and capitalize on the growth potential of undervalued stocks.
Tactical Asset Allocation
UIVM can also be used as part of a tactical asset allocation strategy. For example, if you believe that international markets are poised for outperformance, you could increase your allocation to UIVM. Conversely, if you have concerns about international markets, you could reduce your exposure.
Dividend Reinvestment
UIVM pays dividends, and reinvesting these dividends can enhance the compounding effect over time. By regularly reinvesting dividends, you increase your share count, which can lead to higher overall returns.
Complementary Holding
UIVM can serve as a complementary holding within a diversified portfolio. Pairing UIVM with domestic ETFs like SCHD (Schwab U.S. Dividend Equity ETF) can provide a balanced exposure to both U.S. and international markets, blending high-quality dividend-paying stocks with value and momentum international picks.
Conclusion
UIVM offers a unique investment approach by combining value and momentum principles in international markets. While it presents attractive diversification benefits and potential for higher returns, it also carries risks such as currency fluctuations, political uncertainties, and higher expenses. Investors should consider these factors and align their strategies with their long-term financial goals when incorporating UIVM into their portfolios. By doing so, they can make informed decisions that enhance their overall investment outcomes.