FlexShares seeks to enter still-uncharted niche in fixed-income ETFs.
FlexShares, the ETF unit of Northern Trust, perhaps best known for its $3 billion Morningstar Global Upstream Natural Resources ETF (GUNR | B-81), has plans to launch a fundamentals-based corporate bond ETF. While there is a slew of smart-beta equity ETFs on the market, the fundamentally weighted bond space has been slow to gain traction.
Currently, the largest fund in the sparsely populated space is the PowerShares Fundamental High Yield Corporate Bond Portfolio (PHB | B-70), which is based on an index from Research Affiliates and has accumulated more than $570 million in assets under management. PHB’s investment-grade counterpart, the PowerShares Fundamental Investment Grade Corporate Bond Portfolio (PFIG | B-77)—the most direct competitor to the proposed FlexShares fund—has just about $27 million in assets.
State Street Global Advisors also launched the SPDR Barclays Issuer Scored Corporate Bond ETF (CBND | B-87) in April 2011; it also tracks an index that incorporates fundamentals into the weighting scheme, and currently has less than $10 million in assets.
The FlexShares fund will reweight the components of the in-house Northern Trust U.S. Investment-Grade Corporate Bond Index according to their liquidity and the fundamentals of their issuers, the fund’s prospectus noted.
The filing did not include a ticker, an expense ratio or a primary-listing exchange.