Hartford Multifactor Emerging Markets ETF (ROAM)

The Hartford Multifactor Emerging Markets ETF (ROAM) holds a diversified portfolio of emerging market stocks selected through a systematic process that favors companies with favorable value, quality, and momentum characteristics, aiming to improve returns per unit of risk taken.

What problem does ROAM solve?

Emerging market investing sits between two competing demands. On one hand, developing economies offer higher growth potential — younger populations, rising incomes, urbanization, and industrialization create tailwinds that developed markets no longer have. On the other, emerging markets are riskier: shallower capital markets, weaker regulatory environments, currency volatility, and political instability introduce hazards that do not affect developed-market investors as sharply. A standard emerging market index fund holds everything in the index, giving you both the growth opportunity and the full risk.

ROAM takes a more active approach. Instead of holding all emerging market stocks equally, it screens for firms exhibiting favorable financial characteristics — the markers of value, quality, and momentum. The philosophy is that within emerging markets, it is possible to identify firms less likely to stumble and more likely to compound wealth over time, thereby improving your risk-adjusted return without sacrificing the higher growth potential of the asset class.

What is the multifactor approach?

Multifactor investing is the practice of selecting stocks based on multiple quantitative signals that have historically predicted outperformance. The specific factors ROAM uses include value indicators such as low price-to-earnings ratios and price-to-book ratios (betting that cheap stocks outperform expensive ones), quality metrics such as profitability and low debt (betting that healthy firms outperform financially stressed ones), and momentum signals that measure how stocks have performed recently (betting that trends persist in the short run).

No single factor reliably works in isolation or at all times. Value sometimes underperforms growth for years. Momentum can reverse when sentiment shifts. But historically, a combination of these factors — especially across a large, diversified portfolio — has delivered better risk-adjusted returns than pure market-cap-weighted approaches. ROAM’s index is constructed to tilt toward companies exhibiting positive signals on multiple factors simultaneously.

The benefit of this approach in emerging markets is particularly acute. Emerging market indexes are heavily weighted toward the largest companies, which in developing economies often include state-owned enterprises, monopoly utilities, and other firms that are large but not necessarily efficient or shareholder-friendly. A factor-based screen can de-emphasize these behemoths and tilt toward smaller, more dynamic, higher-quality competitors that have higher growth potential.

How is the fund constructed?

ROAM tracks an index maintained by a Hartford-affiliated index provider. The index starts with a broad universe of emerging market equities — firms listed in countries such as India, Brazil, Mexico, South Korea, Taiwan, Indonesia, and many others. It then applies quantitative screens for value, quality, and momentum to create a more targeted portfolio. The resulting fund typically holds between 50 and 150 stocks across multiple emerging markets.

The portfolio concentrates in several sectors. Technology is a major allocation, given the number of semiconductor and software firms in South Korea, Taiwan, and China. Financial services appears heavily, as banks and insurers in developing markets are often listed companies with significant scale. Consumer discretionary appears, as rising middle-class incomes in emerging markets drive spending. No single stock typically represents more than a small percentage of the fund, and country concentration is spread across several developing economies, reducing single-country political or economic risk.

Emerging markets as an asset class.

Emerging markets are not a monolith. India’s demographics and growth potential differ sharply from Brazil’s commodity exposure or South Korea’s technology dominance. Mexico benefits from proximity to the United States; the Philippines from demographic youth; Vietnam from manufacturing cost advantages. ROAM’s diversification across geographies and sectors means investors get broad exposure to the emerging-market growth story rather than betting on one country or theme.

The sector is sensitive to global economic cycles. When the global economy is strong, emerging markets benefit from rising commodity prices, rising export demand, and rising foreign investment. When the global economy slows, emerging markets often fall first and hardest, as investors retreat to the safety of developed-market assets. The sector is also sensitive to currency movements. Emerging market earnings are denominated in local currencies (Indian rupees, Mexican pesos, Brazilian reals) that fluctuate against the dollar. A strengthening dollar reduces the dollar value of those earnings for U.S. investors.

Factor selection and real-world performance.

The multifactor approach ROAM uses has strong historical support. Over long periods, portfolios tilted toward value, quality, and momentum characteristics have delivered better risk-adjusted returns in many markets, emerging markets included. But past performance is never guaranteed, and factor preferences shift. Growth stocks can outperform value for extended periods. Stability and low volatility can beat momentum. The factors that worked well in one decade may underperform in the next.

Additionally, ROAM’s specific factor weights and construction rules are matters of judgment. Another index provider might weight the factors differently, or apply stricter or looser thresholds for inclusion. Small differences in construction can compound into meaningful performance differences over years.

Risks and volatility.

ROAM is inherently more volatile than a developed-market fund or a broad international equity fund. Emerging market currencies can swung sharply. Political instability, changes in trade policy, or sudden capital outflows can roil these markets. Interest-rate shocks hit emerging markets particularly hard, as investors flee risk.

The multifactor screening adds another layer of specificity and concentration. By tilting toward particular factor characteristics, ROAM is not just offering emerging market exposure; it is offering a particular view on which emerging market stocks will outperform. If that view is wrong — if the factors ROAM selects underperform the broader market for an extended period — the fund will lag.

How to evaluate ROAM.

Start with the fund’s prospectus and fact sheet. Understand what the underlying index is, how the factors are defined and weighted, and what the fund’s historical tracking error and expense ratio have been. The index provider should publish detailed documentation of their methodology.

Next, examine the fund’s holdings and regional breakdown. Does the diversification across countries and sectors align with your view of where emerging market opportunities lie? Are there concentrations that worry you?

Study the fund’s track record relative to broad emerging market indexes and relative to other multifactor emerging market products. Over full market cycles — including periods when emerging markets outperformed and periods when they lagged — has the multifactor tilt improved returns? Or has the additional specificity and cost of active factor selection reduced returns?

Finally, honestly assess your tolerance for emerging market volatility and your time horizon. ROAM is not a defensive position; it is a growth bet on developing economies, refined by a factor-based selection process. If you cannot tolerate 30 to 40 percent drawdowns, ROAM is not suitable. If you have a multi-decade horizon and believe emerging markets will deliver compounding wealth, the multifactor approach offers a way to participate with somewhat better risk management than a pure-index approach.