The term “smart beta” is one of the ETF industry’s hottest buzz phrases, but the application of smart beta, or non-market capitalization weighting methodologies, is not limited to developed markets.

Investors can choose from an array of cap-weighted, diversified emerging markets ETFs. Knowing that, some fund issuers have seized the opportunity to bring the smart beta approach to developing world equities. [Advisors Warm to Smart Beta ETFs]

One member of the new generation of smart beta emerging markets ETFs is the FlexShares Morningstar Emerging Markets Factor Tilt Index Fund (NYSEArca: TLTE), which debuted in September 2012 and now has $154.6 million in assets under management. [FlexShares Expands Factor Tilt Lineup]

The “tilt” in TLTE is away from large-caps and towards higher allocations to mid- and small-caps than are seen in most diversified emerging markets ETFs. In a year in which returns accrued by major state-controlled companies throughout the developing world have been mediocre at best, dodging some of largest emerging markets companies has not been a bad idea. [Brazil ETFs Stumble Back to Multi-Month Lows]

With an annual expense ratio of 0.65%, TLTE tracks the Morningstar Emerging Markets Factor Tilt Index. TLTE’s combined 48.7% allocation to China, South Korea and Taiwan is not unfamiliar among major multi-country emerging markets funds, but it is the cap breakdown that makes TLTE unique as small-caps account for over 32% of TLTE’s weight.

Since inception, TLTE’s underlying index has outpaced the MSCI Emerging Markets Index by nearly 70 basis points, according to FlexShares data.

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