Today (9/28/12), Northern Trust introduced two new ETFs that tilt their weightings toward small cap and value stocks. FlexShares Morningstar Developed Markets ex-US Factor Tilt Index Fund (TLTD) and FlexShares Morningstar Emerging Market Factor Tilt Index Fund (TLTE) seek to enhance exposure to international stock markets through the multi-factor tilting process of the underlying indexes.
The products are based on the belief that a bias to small cap and value stocks offers greater long-term growth potential than that provided by a traditional market cap weighting. The new offerings apply to international markets the same concepts introduced a year ago for the FlexShares Morningstar U.S. Market Factor Tilt Index Fund (TILT). The underlying Morningstar indexes follow a four-step construction process of 1) defining the investable universe, 2) defining the “total market” portfolio of that universe, 3) assigning value scores and stock styles, and 4) applying the factor tilt.
FlexShares Morningstar Developed Markets ex-US Factor Tilt Index Fund (TLTD) applies a small cap and value tilt to developed markets excluding the U.S. Unlike the popular MSCI EAFE developed markets classification, TLTD also includes Canadian stocks. The fund’s capitalization allocations are Large 58.3%, Mid 16.7%, Small 23.9%, and Micro 1.1%. The Value versus Growth ratio was not found.
TLTD has 1,336 holdings, with the largest positions being Nestle 1.2%, HSBC Holdings 1.0%, Novartis 0.9%, Vodaphone Group 0.9%, and BP 0.8%. The country breakdown has Japan at 20.4%, UK 16.9%, Canada 10.9%, Australia 7.6%, France 6.7%, and Germany 6.6%. The largest sector allocations include Financials 23.6%, Industrials 14.5%, Consumer Discretionary 12.3%, Materials 11.0%, and Consumer Staples 9.5%.
Expenses are capped at 0.42%, and additional details are located in the TLTD overview, fact sheet (pdf), and prospectus (pdf).
FlexShares Morningstar Emerging Market Factor Tilt Index Fund (TLTE) applies a small cap and value tilt to emerging markets. The largest country allocations include South Korea 15.9%, Taiwan 13.4%, Brazil 12.1%, South Africa 9.9%, Hong Kong 9.2%, and China 8.7%. It’s not clear why Hong Kong is included, since it is a developed market and is represented in TLTD. My presumption is that it represents China stocks listed in Hong Kong. Capitalization allocations are Large 47.9%, Mid 19.6%, Small 29.2%, and Micro 3.4%.
TLTE has 1,056 holdings with the largest positions being Samsung Electronics 2.8%, Taiwan Semiconductor Manufacturing 1.5%, China Mobile 1.5%, Gazprom 1.3%, and America Movil 1.1%. Top sector exposures include Financials 22.2%, Technology 13.8%, Materials 12.9%, Consumer Discretionary 10.7%, and Energy 10.5%.
Expenses are capped at 0.65%, and additional details are located in TLTE overview, fact sheet (pdf), and prospectus (pdf).