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Tag: International Investing

Hot Stocks in Hong Kong Are Boosting ETFs Like ‘ENTR’

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Hong Kong-listed equities are on fire this year, aiding ETFs which investors might not readily expect. The ERShares Entrepreneurs ETF (ENTR) is one of them.

ENTR tries to reflect the performance of the Entrepreneur 30 Index, which is comprised of 30 U.S. companies with the highest market capitalizations and composite scores based on six criteria referred to as entrepreneurial standards. ENTR primarily invests in US Large Cap companies that meet the thresholds embedded in their proprietary Entrepreneur Factor (EF).

The ETF allocates more than 28% of its weight to ex-US stocks, according to Morningstar data.

“Among her favorites are Autonomous Aerial Vehicles (AAV) maker Ehang, and FinTech company FUTU. Both have exceeded 150% YTD performance with explosive growth that she believes will propel them higher,” according to ERShares, citing COO and Chief Investment Strategist Eva Ados.

ENTR 6 Month Performance

The Right Way to Blend Domestic and International Exposure

“Ados mentions the up to 50% discounted valuations that HK companies experience relative to mainland China and the US. She notes regulatory changes that now allow mainland Chinese investors to move directly into HK, which was not possible before,” according to ERShares.

As Ados also points out, there are some benefits that come with equities exposure in Hong Kong.

“With respect to the US, more investors are attracted to HK for not only the relatively attractive pricing but also the lower risk of being delisted on US exchanges,” notes ERShares. “The combination can sometimes produce exceptional run ups as the recent single-day 300% gain from Kuashou with last week’s IPO. She adds that currency gains only add icing to the cake. She remains bullish for International and Small Cap equities, especially those with a high growth entrepreneurial orientation.”

The Gains Are Abroad. And Not Where You Might Think

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Data confirm investors are pouring cash into international equity funds, a scenario that bodes well for the ERShares NextGen Entrepreneurs ETF (ERSX).

ERSX selects the most entrepreneurial, primarily Non-US Small Cap companies, that meet the thresholds embedded in its proprietary Entrepreneur Factor (EF). ERShares’ ETF delivers compelling performance across a variety of investment strategies without disrupting investors’ underlying risk profile metrics. Their geographic diversity enables them to harness global advantages through additional returns associated with currency fluctuations, strategic geographic allocations, comparative trade imbalances, and relative supply/demand strengths.

The unique factor strategy offered by ERSX is ideally suited for investors looking to capitalize on both growth and value opportunities found with ex-U.S. smaller stocks.

“International exchange-traded funds are back in favor,” reports Ari Weinberg for the Wall Street Journal. “The turnaround has been building for months. Following the summer 2020 rally for U.S. stocks, interest in international developed- and emerging-markets stocks picked up in November and December and has surged through February. According to FactSet, international-stock ETFs (excluding “global” funds, which have U.S. exposure), have gathered $31 billion in net new assets in the first two months of this year, compared with $30 billion for all of 2020.”

ERSX 6 Month Total Return

With International Stocks, the Factors Matter

Getting international exposure is a great way to pull in uncorrelated market movements. But at a time when a pandemic has the whole world in its grasp, it becomes quite the challenge.

Many ex-U.S. markets are considered value destinations. ERSX offers quality/value tilts with several of its components holdings.

“The International Monetary Fund is projecting 5.5% global GDP growth in 2021, with growth in emerging markets and developing economies as a group projected at 6.3%, led by India (11.5%) and China (8.1%). Among developed economies, Spain (5.9%), France (5.5%) and the U.K. (4.5%) are expected to grow at a faster pace than the projected 4.3% for advanced economies as a whole. (The IMF estimates U.S. GDP growth at 5.1% in 2021.),” according to the Journal.

Small cap investors already know that looking at equities outside the large cap universe can yield substantial gains, but one area they may not have considered is looking abroad.

ERSX isn’t any old small cap ETF. It blends domestic and international exposure, which is relevant at time when many markets are betting international smaller stocks will top U.S. equivalents. Non-U.S. equities are poised to take flight, and it’s possible that this asset class is in for a substantial period of out-performance.

Are Your Small Cap ETFs Truly ‘Entrepreneurial’?

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Even with some recent weakness in equities, small caps and foreign stocks remain appealing. That script underscores the continued allure of the ERShares NextGen Entrepreneurs ETF (ERSX).

ERSX selects the most entrepreneurial, primarily Non-US Small Cap companies, that meet the thresholds embedded in its proprietary Entrepreneur Factor (EF). ERShares’ ETF delivers compelling performance across a variety of investment strategies without disrupting investors’ underlying risk profile metrics. Their geographic diversity enables them to harness global advantages through additional returns associated with currency fluctuations, strategic geographic allocations, comparative trade imbalances, and relative supply/demand strengths.

ERSX 1 Year Total Return

“The year-to-date return for small-caps through the end of February was a remarkable 25 percentage points greater than that of large-caps (as measured by the 20% of stocks with the smallest market caps vs. the comparative quintile of the largest),” reports Mark Hulbert for the Wall Street Journal. “While it isn’t unexpected for small-cap portfolios to beat large-caps over time—a long-term tendency that Wall Street analysts refer to as the ‘size effect’—what is unusual is the magnitude of the outperformance. It has averaged just 0.9 percentage point over all two-month periods since 1926, according to data from Dartmouth professor Ken French.”

The unique factor strategy offered by ERSX is ideally suited for investors looking to capitalize on both growth and value opportunities found with ex-U.S. smaller stocks.

ERSX Leadership

Why focus on entrepreneurial companies? Founder-run entrepreneurial companies have shaped the economy by investing in its people and innovation leading to exceptional growth. Having the right Founder-CEO can make an important difference. The differential between the time period with a Founder-CEO and without is approximately 7% in excess return.

See also: The Small Cap ERSX ETF: Finding Hidden Gems Abroad

“Indeed, according to several researchers, small-caps’ recent strength may actually be something else in disguise—that is, it may have to do with factors other than just size, such as the battle between growth and value stocks,” according to the Journal.

Entrepreneurial companies were better able to shift gears to adapt to the new market environment, swiftly pivoting their strategies to protect people from the pandemic and support people adapting to new living routines. They also led the way, irrespective of market cap and geography. Many global companies also pivoted well during uncertain markets and outperformed in bull markets.

ERSX Holdings