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

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

Profile:

The FlexShares ESG & Climate Developed Markets ex-US Core Index Fund (ESG) is an ETF that offers exposure to large- and mid-cap stocks in developed markets outside the U.S. It tracks the FlexShares ESG & Climate Developed Markets ex-US Core Index, which selects companies based on their ESG (environmental, social, and governance) and climate-related attributes.

The fund excludes companies involved in controversial activities (e.g., tobacco, weapons) and prioritizes those with strong ESG practices and positive climate impact. ESG follows a core index approach, investing in companies with robust business fundamentals and sustainable competitive advantages.

Objective:

The primary investment goal of ESG is to provide long-term capital appreciation by tracking the performance of the FlexShares ESG & Climate Developed Markets ex-US Core Index.

Issuer:

• Name: Northern Trust Asset Management
• Reputation and Reliability: Northern Trust is a globally recognized financial institution with a long-standing reputation for stability and reliability. It has been managing assets for over 125 years and is currently one of the world's largest asset managers.
• Management: The ETF is managed by an experienced team with expertise in ESG investing and index management.

Market Share:

ESG currently has a small market share in its sector. However, the ESG and climate-focused investing market is rapidly growing, suggesting potential for future expansion.

Total Net Assets:

As of November 2023, ESG has approximately $1.2 billion in total net assets.

Moat:

• ESG Focus: ESG's emphasis on ESG and climate-conscious investing differentiates it from traditional developed market ETFs.
• Experienced Management: The experienced management team with expertise in ESG investing provides a competitive edge.
• Index-Based Approach: The ETF's transparency and rule-based approach attract investors seeking a passive and diversified exposure to the developed market.

Financial Performance:

ESG has delivered positive returns since its inception in 2019, outperforming its benchmark index in most periods. However, past performance is not indicative of future results.

Benchmark Comparison:

ESG has consistently outperformed the MSCI EAFE Index (net of expenses) over various timeframes, demonstrating its ability to generate alpha.

Growth Trajectory:

The increasing demand for sustainable investing suggests a promising growth trajectory for ESG.

Liquidity:

ESG has a moderate average trading volume, making it relatively liquid and easy to buy and sell.

Bid-Ask Spread:

The bid-ask spread for ESG is relatively tight, indicating low transaction costs.

Market Dynamics:

• Growing ESG Investment: The increasing investor focus on ESG and climate-conscious investing bodes well for ESG's future.
• Developed Market Performance: The performance of developed markets outside the U.S. will impact ESG's returns.
• Economic and Geopolitical Factors: Global economic and geopolitical events can influence ESG's performance.

Competitors:

• iShares MSCI EAFE ESG Optimized ETF (ESGV)
• Xtrackers MSCI EAFE ESG Leaders Equity ETF (EFEA)
• SPDR MSCI EAFE ESG Tilt ETF (EFEZ)

Expense Ratio:

ESG has an expense ratio of 0.25%.

Investment Approach and Strategy:

• Strategy: ESG tracks the FlexShares ESG & Climate Developed Markets ex-US Core Index.
• Composition: The fund primarily invests in large- and mid-cap stocks of companies in developed markets outside the U.S. These companies are selected based on their ESG and climate-related attributes.

Key Points:

• ESG provides exposure to developed markets outside the U.S. with a focus on ESG and climate-conscious investing.
• The fund has a robust track record of outperforming its benchmark index.
• ESG benefits from a growing demand for sustainable investments and experienced management.

Risks:

• Market Risk: ESG's performance is tied to the performance of developed markets outside the U.S., which can be volatile.
• ESG Risk: The reliance on ESG factors for company selection may lead to underperformance if these factors fail to align with market expectations.
• Liquidity Risk: ESG has a moderate trading volume, which could pose challenges during periods of high market volatility.

Who Should Consider Investing:

• Investors seeking exposure to developed markets outside the U.S.
• Investors interested in ESG and climate-conscious investing
• Investors looking for a passively managed and diversified fund with a strong track record

Fundamental Rating Based on AI:

8/10

Justification:

ESG exhibits strong fundamentals based on its experienced management team, differentiated ESG focus, and solid track record of outperforming its benchmark index. However, the moderate market share and potential liquidity challenges slightly limit its overall score.

Resources and Disclaimers:

• Northern Trust ESG & Climate Developed Markets ex-US Core Index Fund Fact Sheet: https://www.northerntrust.com/insights/documents/esg-climate-developed-markets-ex-us-core-index-etf-fact-sheet.pdf
• Morningstar Fund Report: https://www.morningstar.com/etfs/arcx/esg

Disclaimer: This information is for educational purposes only and should not be considered investment advice. Please conduct your own due diligence before making any investment decisions.