FlexShares Plans Emerging Market Factor ETF

September 20, 2012

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TILTFlexShares Morningstar U.S. Market Factor Tilt
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FlexShares' planned ETF is another way to tap into emerging markets.

FlexShares, the ETF unit of Chicago-based Northern Trust, filed paperwork with the Securities and Exchange Commission to market an emerging markets version of a U.S. small-cap and value-tilt ETF it launched a year ago.

The FlexShares Morningstar Emerging Markets Factor Tilt Index Fund (NYSEArca: TLTE) would replicate a Morningstar index that assigns more weight to small-cap and value stocks than would a traditional cap-weighted methodology. The underlying benchmark includes nearly 2,000 securities.

The fund, which is slated to cost a net of 0.65 percent in annual fees, would join FlexShares’ Morningstar U.S. Market Factor Tilt Index Fund (NYSEArca: TILT), which is built much in the same way, but focuses on U.S. equities.

TILT has gathered some $116 million since it came to market a year ago, and it has kept up pace with the broad stock market rally, with gains of more than 16 percent year-to-date.

Indeed, FlexShares seems to be making a strong push into the factor-based strategies, often called smart beta or intelligent beta strategies. Such smart beta products cherry-pick securities with certain characteristics with a view to managing risk the way an active manager might, only with rules-based indexes instead.

The company has recently filed paperwork to market an international developed-markets ex-U.S. version of TILT, TLTD, which is currently sitting in the regulatory pipeline.

The latest filing did not detail market capitalization screens or country exposure of the planned emerging market ETF, but did say its underlying benchmark rebalances quarterly and is reconstituted on a semiannual basis.


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