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Tickers in this Article: TILT, TLTD, TLTE, VTI
FlexShares, the Chicago-based ETF issuer that has seen assets surge over the past year, announced last week an expansion of its relatively narrow product lineup. The company is launching two additional ETFs that tilt exposure towards small cap and value stocks, adding funds targeting emerging markets and developed markets outside of the United States to round out the suite. The new ETFs include:
  • FlexShares Morningstar Emerging Markets Factor Tilt Index Fund (TLTE)
  • FlexShares Morningstar Developed Market ex-US Factor Tilt Index Fund (TLTD)

Under The Hood

The factor tilt mentioned in the names of these new ETFs refers to strategic shifts int he underlying portfolios towards small cap stocks and value stocks. Based on the theory that these factors have added incremental performance benefits over the long term, this strategy is designed to offer broad-based market exposure while shifting slightly towards corners of the market that may offer opportunities for superior long-term performance.

FlexShares previously launched its Morningstar US Market Factor Tilt Index Fund (TILT) just over a year ago; that ETF offers exposure to a broad portfolio of U.S. stocks (it has about 2,600 individual holdings) but with a tilt towards small cap and value stocks. Compared to other broad-based equity ETFs in the All Cap Equities ETFdb Category, such as Vanguard's Total Stock Market ETF (VTI), the difference is apparent:



Each of the new ETFs will feature substantial overlap to other products targeting emerging markets and ex-U.S. developed markets, but will distinguish themselves by tilting their portfolios towards the smaller stocks in those universes.

TLTE Portfolio

TLTE will be linked to the Morningstar Emerging Markets Factor Tilt Index. That benchmark makes its largest country allocations to China (18%) and South Korea (about 15%), with Taiwan (12%), Brazil (11%) and South Africa (9%) also making up material allocations. From a sector perspective, TLTE is heaviest in financials (23% of the portfolio), materials (13%) and technology (13%). The smallest weights are afforded to health care and utilities, which combine to make up only about 6%.

Large cap stocks will make up about 48% of the portfolio, with mid caps representing about 20% and the remainder in small and micro cap securities .

TLTD Portfolio

This ETF allocates about 20% of its portfolio to both Japan and the United Kingdom, with Australia, France, Germany and Switzerland also receiving material weightings. TLTD does include an allocation to Canada (about 11% of assets), a country that is excluded from EAFE ETFs. From a sector perspective, this ETF is also heaviest in financials (23%), followed by industrials (14%) and consumer discretionary (12%).

Large cap stocks make up about 58% of the TLTD portfolio. Mid caps represent about 17%, with small and micro caps making up the rest .

FlexShares ETFs have thrived at a time when companies such as Scottrade (through its FocusShares lineup) and Russell have pulled out of the industry after failing to generate substantial asset bases; the four existing products had accumulated about $1.6 billion in assets.

Disclosure: No positions at time of writing.

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