Investors are facing new challenges as they try to predict how to best position their equity portfolios for what lies ahead. While significant risks loom large on the horizon and threaten to derail the post-Covid recovery, equity factors can be an ideal tool to adjust for different macroeconomic conditions.
In the upcoming webcast, Factor Fundamentals for Your Portfolio, Michael Hunstad, Head of Quantitative Strategies, Northern Trust Asset Management; and Michael Natale, Head of Intermediary Distribution, Northern Trust Asset Management, will look at investing in different market environments and the factors investors should expect to outperform today and as conditions change.
For example, the FlexShares US Quality Large Cap Index Fund (CBOE: QLC) selects and weights companies based on management efficiency, profitability, and cash flow to determine quality. Management efficiency is a quantitative evaluation of a firm’s deployment of capital and its financing decisions. Profitability scores help weed out firms with wider margins, which may be better positioned to grow. Lastly, cash flow signals the liquidity level of a company. Those with higher cash flows may be better situated to take advantage of potential opportunities or enjoy a financial cushion in downturns.
FlexShares has partnered with Morningstar in creating a line of smart beta ETFs, such as 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. Additionally, for international exposure, investors can look to the FlexShares Morningstar Developed Markets Ex-US Factor Tilt Index Fund (NYSEArca: TLTD) and the FlexShares Morningstar Emerging Markets Factor Tilt Index Fund (NYSEArca: TLTE).
Investors seeking stability, along with exposure to the growing U.S. markets, can look to the FlexShares Quality Dividend Index Fund (NYSEArca: QDF), FlexShares Quality Dividend Dynamic Index Fund (NYSEArca: QDYN), and the FlexShares Quality Dividend Defensive Index Fund (NYSEArca: QDEF). The suite includes a group of smart beta ETFs that focus on both quality and dividends.
As a way to help investors access quality and low-volatility strategies to hedge risks and maintain upside potential, Northern Trust’s FlexShares offers a suite of quality strategies, including the FlexShares US Quality Low Volatility Index Fund (NYSE: QLV). The ETF utilizes a quality screen to provide exposure to high-quality companies with lower absolute risk, thereby limiting potential future volatility. The quality screen analyzes a broad universe of equities based on critical indicators such as profitability, management efficiency, and cash flow, and then excludes the bottom 20% of stocks with the lowest quality score. The index is then subject to the regional, sector, and risk-factor constraints, to manage unintended style factor exposures, significant sector concentration, and high turnover.
Financial advisors who are interested in learning more about factor investments can register for the Tuesday, May 4 webcast here.