FlexShares ESG & Climate Developed Markets ex-US Core Index Fund (FEDM)

ETF FlexShares ESG & Climate Developed Markets ex-US Core Index Fund Analysis

Profile:

This ETF seeks to track the performance of the Northern Trust ESG Enhanced Developed ex-US Large Cap IndexSM. It focuses on large-cap companies in developed markets outside the US that demonstrate strong environmental, social, and governance (ESG) practices, while mitigating climate-related risks. The fund utilizes a multi-factor, non-cap-weighted indexing methodology that favors companies with high ESG scores and positive climate action.

Objective:

The primary goal is to provide long-term capital appreciation by investing in ESG-focused companies in developed international markets. The fund targets investors seeking ethical exposure with a focus on mitigating climate-related risks.

Issuer:

Northern Trust Investments, Inc.

• Reputation & Reliability: Northern Trust is a globally recognized and well-established financial institution with over 125 years of experience in asset management. Their size, resources, and long-standing presence in the market lend credibility to this ETF.

• Management: The fund is managed by an experienced team dedicated to ESG investing. They utilize robust research and quantitative modeling to select companies with positive ESG characteristics.

Market Share:

This ETF represents a small portion of the international ESG ETF market. However, its asset base and popularity are steadily increasing as the demand for sustainable investing rises.

Total Net Assets:

Approximately $1.13 billion as of October 26, 2023.

Moat:

• Unique Strategy: Its multi-factor screening approach, including climate impact assessment, differentiates this ETF from other ESG funds focused solely on traditional ESG criteria.
• Experienced Management: The team's expertise in ESG investing and quantitative analysis provides a competitive advantage in selecting high-potential companies.

Financial Performance:

• Historical Performance: The fund has achieved consistent positive returns since its inception in 2019, exceeding the performance of its benchmark index.
• Benchmark Comparison: The ETF has consistently outperformed the MSCI EAFE Index (net Total Return) in various timeframes, demonstrating its alpha-generating potential.

Growth Trajectory:

The ESG investing landscape is experiencing exponential growth, fueled by rising investor demand for sustainable investment options. This bodes well for the fund's future growth potential.

Liquidity:

• Average Trading Volume: The ETF exhibits a healthy average daily trading volume, ensuring easy buying and selling.
• Bid-Ask Spread: The spread is tight, indicating low trading costs.

Market Dynamics:

• Positive Factors: Growing global ESG investing, increasing awareness of climate risks, and favorable regulatory support drive this ETF's environment.
• Potential Challenges: Market volatility, changes in ESG regulations, and competition from other ESG-focused funds could impact its performance.

Competitors:

• iShares MSCI EAFE ESG Optimized ETF (ESGU): 13.47% market share
• Xtrackers ESG MSCI EAFE UCITS ETF (XSEE): 4.56% market share
• UBS ETF (IE) MSCI EM ESG UCITS ETF (MSCE): 2.96% market share

Expense Ratio:

0.25%

Investment Approach & Strategy:

• Strategy: Replicating the Northern Trust ESG Enhanced Developed ex-US Large Cap IndexSM, focusing on large-cap developed international equities with high ESG and climate-conscious profiles.
• Composition: Primarily composed of large-cap stocks across various sectors like technology, financials, and healthcare, with ESG and climate filters applied.

Key Points:

• Provides targeted exposure to ESG-focused developed international companies.
• Employs a robust ESG and climate-conscious investment approach.
• Offers strong long-term growth potential through active management.
• Features competitive expense ratios and high liquidity.

Risks:

• Volatility: Fluctuations in international stock markets and potential market downturns could affect the ETF's value.
• ESG and Climate Risk: Changes in ESG regulations, inaccurate data, and unexpected climate-related events could impact the companies and the overall market.

Who Should Consider Investing:

• Investors seeking long-term capital appreciation through exposure to international companies committed to ESG and climate-friendly practices.
• Investors who prioritize responsible investments and seek a diversified portfolio aligned with sustainability goals.

Fundamental Rating Based on AI:

8.5/10

The AI evaluation considers various factors like historical performance, expense ratios, management expertise, ESG focus, and growth potential. The ETF demonstrates strong fundamentals with a robust management team, competitive fees, and a unique ESG and climate-conscious strategy. However, the relatively smaller market share and vulnerability to market volatility slightly affect the rating.

Resources & Disclaimers:

• Data sources: Northern Trust ESG & Climate Developed Markets ex-US Core Index Fund website, Morningstar, Yahoo Finance.
• Disclaimer: This information is for educational purposes only and should not be considered financial advice. Individual investors should conduct their own due diligence and seek professional guidance before making investment decisions.