FlexShares Plans Global ‘Quality’ REIT ETF

September 10, 2013

The Northern Trust unit plans a self-indexed global REIT ETF that focuses on ‘quality’ stocks.

Northern Trust filed regulatory paperwork to bring another fund to market under its FlexShares ETF brand: the FlexShares Global Quality Real Estate Index Fund, a self-indexed, global real estate investment trust fund that employs a fundamental methodology that targets “quality” stocks.

The FlexShares Global Quality Real Estate Fund will come up against two competitors in the global real estate niche: the SPDR Dow Jones Global Real Estate ETF (RWO | C-61); and the Cohen & Steers Global Realty Majors fund (GRI | C-66). With expense ratios at a respective 50 and 55 basis points, both funds are allocated heavily toward the commercial side of the global real estate market.

The FlexShares Global Quality Real Estate Index Fund will track Northern Trust’s own index, making it the latest example of a trend toward self-indexing that FlexShares is very much a part of. Moreover, FlexShares is also tapping into a trend toward fundamental indexing, as the Northern Trust Global Quality Real Estate Index will cherry-pick “quality” securities targeting both commercial and residential real estate.

FlexShares ETFs currently has a lineup of 13 funds that have successfully gathered assets, indicating Northern Trust’s nose for exploiting prospective pockets of the fund universe. The firm, which began rolling out funds in September 2011, now has nearly $6 billion in assets, according to IndexUniverse’s latest daily “ETF League Table.” Almost half of that, or $2.6 billion, is in the FlexShares fund, the FlexShares Morningstar Global Upstream Natural Resources ETF (GUNR | B-85).

The “quality” screens means the rules-based index’s selection methodology will isolate securities that must meet a slew of criteria, including profitability, management expertise, cash flow, value and other factors.

The index will be reconstituted annually and rebalanced quarterly, and will not include mortgage REITs, brokers or bankers.

The fund doesn’t yet have a ticker and Northern Trust hasn’t priced it yet, but the prospectus did say it would have its primary listing on the New York Stock Exchange’s electronic platform, Arca.



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