ETFs traditionally helped investors easily and efficiently track broad market moves. However, as the industry evolved, investors are now able to achieve a more focused investment objective.
“When FlexShares entered the ETF space in 2011, it did so with the belief that a fund’s alignment with a particular investment objective, rather than with an investment style, would be much more meaningful to investors and therefore resonate much more with them,” Darek Wojnar, the head of funds, including FlexShares ETFs, and managed accounts at Northern Trust Asset Management, said in a note. “Every one of FlexShares funds is designed to meet one of four fundamental needs of investors: growing assets, managing risk, providing liquidity, and generating income.”
For example, the FlexShares Morningstar U.S. Market Factor Tilt Index Fund (NYSEArca: TILT), which tries to provides enhanced exposure to U.S. equities by tilting the portfolio toward long-term growth potential of small-cap and value stocks, is part of FlexShares’ capital appreciation theme.
The FlexShares Morningstar Global Upstream Natural Resource Index Fund (NYSEArca: GUNR), which provides exposure to the rising demand for natural resources and tracks global companies in the energy, metals and agriculture sectors, while maintaining a core exposure to the timberlands and water resources sectors, is a part of the risk management theme.
Dividend ETF investors who are seeking stability, along with exposure to the growing U.S. markets, can look to the FlexShares Quality Dividend Index Fund (NYSEArca: QDF), which is part of FlexShares’ income generation strategy.
Lastly, the FlexShares Ready Access Variable Income Fund (NYSEArca: RAVI) helps in achieving liquidity management.
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“FlexShares describes this as investing with a purpose. Its focus is on distinctive products at attractive price points that enable it to offer compelling value for the fees it receives. It is not a me-too shop,” Wojnar said.
These types of strategies, especially FlexShares’ alternatively indexing methodologies, are seen as a way to combine the benefits of Northern Trust’s extensive asset management expertise with the efficiency of the passive index-based ETF structure.
“There is an active component to its proprietary ‘Flexible Indexing’ process whereby an index is designed using empirical data and analysis to create distinctive ETF solutions,” Wojnar added. “This speaks to FlexShares contention that the long-running argument over whether active or passive management is better is a misplaced one, and that the key question is whether investment approaches or strategies meet investor objectives.”
For more information on ETFs, visit our ETF 101 category.