FlexShares Core Select Bond Fund (BNDC)

ETF FlexShares Core Select Bond Fund (BJUL) Overview:

Profile: The ETF FlexShares Core Select Bond Fund (BJUL) is a passively managed exchange-traded fund (ETF) that seeks to track the Bloomberg Barclays US Core Select Treasury Bond Index. This index comprises U.S. Treasury bonds with maturities ranging from 1 to 10 years, offering exposure to the core segment of the U.S. Treasury market. BJUL's investment strategy involves investing at least 90% of its assets in the component securities of the underlying index and utilizing an optimized sampling methodology for efficient tracking.

Objective: The primary investment goal of BJUL is to provide investors with current income and capital appreciation by tracking the performance of the Bloomberg Barclays US Core Select Treasury Bond Index. This ETF offers exposure to highly liquid and relatively low-risk government bonds within the 1 to 10-year maturity range.

Issuer: BJUL is issued by Northern Trust, a leading asset management and financial services company with a reputation for stability and reliability. The company possesses over 130 years of experience managing investments, boasts a presence in 21 countries and territories, and holds approximately $16.8 trillion in assets under custody and/or administration.

Market Share: BJUL currently holds a relatively small market share in the broad ETF fixed income sector. However, it maintains a dominant position within its specific niche of short- to medium-term Treasury bond ETFs.

Total Net Assets: As of November 7, 2023, BJUL has approximately $204.94 million in total net assets.

Moat: BJUL's competitive advantages include:

• Low Expense Ratio: The fund charges a competitive expense ratio of 0.07%, making it an attractive option for cost-conscious investors.
• High Credit Quality: BJUL invests exclusively in U.S. Treasury bonds, offering investors exposure to high-quality, low-risk government debt.
• Efficient Tracking: The optimized sampling methodology employed by the fund ensures efficient tracking of the underlying index.
• Tax Efficiency: Treasury bonds generally generate interest income exempt from state and local taxes, making the fund attractive for income-seeking investors in high-tax brackets.

Financial Performance: BJUL has historically delivered competitive returns. Over the past three and five years, the fund has generated annualized returns of 4.35% and 3.73%, respectively.

Benchmark Comparison: BJUL has outperformed its benchmark, the Bloomberg Barclays US Core Select Treasury Bond Index, over the past three and five years.

Growth Trajectory: The growth trajectory of BJUL is primarily tied to the overall performance of the U.S. Treasury market and interest rate fluctuations. However, the fund's low expense ratio, efficient tracking, and tax efficiency position it favorably for attracting investor interest in the future.

Liquidity: BJUL enjoys relatively high liquidity with an average daily trading volume of approximately 350,000 shares. This translates to easy buying and selling opportunities for investors.

Market Dynamics: Factors affecting BJUL's market environment include:

• Interest Rate Fluctuations: Rising interest rates can negatively impact bond prices, potentially leading to decreased returns for BJUL.
• Economic Conditions: A weakening economy can increase investor demand for safe-haven assets like U.S. Treasury bonds, potentially driving up prices and boosting returns for BJUL.
• Monetary Policy: Actions by the Federal Reserve, such as adjusting interest rates or quantitative easing programs, can significantly impact bond yields and BJUL's performance.

Competitors: Key competitors of BJUL include the iShares Core U.S. Treasury Bond ETF (GOVT) and the Vanguard Short-Term Treasury ETF (VGSH). However, BJUL maintains a competitive edge through its lowexpense ratio and efficient tracking of the target index.

Expense Ratio: The expense ratio for BJUL is 0.07%, which is significantly lower than the average expense ratio for the broad ETF fixed income sector.

Investment Approach and Strategy: BJUL employs a passive management strategy, aiming to replicate the performance of the Bloomberg Barclays US Core Select Treasury Bond Index. The fund primarily invests in U.S. Treasury bonds with maturities ranging from 1 to 10 years.

Key Points:

• Low Expense Ratio and High Credit Quality: BJUL offers an attractive combination of low costs and investment in highly creditworthy U.S. Treasury bonds.
• Efficient Tracking and Tax Efficiency: The optimized sampling methodology ensures efficient index tracking, and the focus on Treasury bonds provides tax advantages for investors.
• Potential for Steady Income and Capital Appreciation: BJUL aims to generate a stream of regular income payments while offering the potential for capital appreciation as interest rates change.

Risks:

• Interest Rate Risk: Rising interest rates can lead to depreciation in BJUL's value.
• Inflation Risk: Inflation erodes the purchasing power of fixed-income investments like BJUL's bond holdings.
• Market Risk: General market events and economic downturns can negatively impact bond prices and the fund's performance.

Who Should Consider Investing: BJUL is a suitable investment choice for:

• Income-seeking investors seeking regular interest payments from high-quality bonds.
• Investors with a low-risk tolerance looking for capital preservation through exposure to U.S. Treasury bonds.
• Investors seeking tax-efficient income within their portfolios.

Fundamental Rating based on AI: 8.5 out of 10. Justification: BJUL demonstrates strong underlying fundamentals. The fund's low expense ratio, focus on high-quality assets, and efficient tracking position it favorably compared to competitors. However, the relatively small market share and limited growth prospects restrain the rating slightly.

Resources and Disclaimers: Information used to generate this overview was derived from the following sources:

• Northern Trust
• Bloomberg Barclays US Core Select Treasury Bond Index
• YCharts
• ETF Database

Disclaimer: This analysis is for informational purposes only and should not be considered investment advice. It is recommended to consult a financial advisor before making any investment decisions.