FlexShares Morningstar Emerging Markets Factor Tilt Index Fund (TLTE)TLTE

ETF FlexShares Morningstar Emerging Markets Factor Tilt Index Fund (EMFM) Overview

Profile

Description: EMFM is an ETF that tracks the Morningstar® Emerging Markets Factor Tilt Index℠. This index selects stocks from the Morningstar Emerging Markets Index (EMX) and applies a factor-tilting methodology to overweight stocks with exposure to the following factors: Valuation, Profitability, and Quality. This approach aims to capture potential outperformance relative to the broader EM market.

Investment Strategy: Passive, Index-tracking

Target Sector: Emerging Markets

Asset Allocation: Focuses on large- and mid-cap stocks across various sectors within emerging markets

Investment Goal: Long-term capital appreciation through exposure to emerging markets while aiming to improve risk-adjusted returns by tilting towards specific factors.

Objective

Primary objective:

• To track the performance of the Morningstar® Emerging Markets Factor Tilt Index℠
• To provide investors with access to a diversified portfolio of emerging market stocks with a focus on value, profitability, and quality factors.
• To potentially outperform the broader emerging market through factor tilting.

Issuer

Name: FlexShares ETFs Trust

Website: https://www.flexshares.com/etfs/emfm/overview

Reputation and Reliability: FlexShares is a well-established ETF provider known for its innovative and research-driven investment strategies. The company is part of Northern Trust Corporation, a leading asset management firm with over a century of experience.

Management: The portfolio management team at FlexShares consists of experienced professionals with deep knowledge of emerging markets and factor investing.

Market Share

Market Share: EMFM holds a relatively small market share in the emerging markets factor ETF space, about 0.25% as of November 2023.

Total Net Assets

Total Net Assets: Approximately $300 million as of November 2023.

Moat

Competitive Advantages:

• Unique Factor-Tilting Approach: EMFM's factor-tilting methodology aims to capture potential outperformance relative to the broader EM market by focusing on stocks with value, profitability, and quality characteristics.
• Experienced Management Team: The portfolio is managed by a team of seasoned professionals with a strong track record in emerging markets and factor investing.
• Cost-efficient: EMFM has a relatively low expense ratio compared to other emerging markets factor ETFs.

Financial Performance

Historical Performance: EMFM has generally outperformed the Morningstar Emerging Markets Index (EMX) since its inception in 2018. However, it is important to note that past performance is not indicative of future results.

Benchmark Comparison: EMFM has consistently outperformed the EMX in terms of both total return and risk-adjusted returns.

Growth Trajectory

Trends and Growth Patterns: Emerging markets are expected to continue to grow at a faster pace than developed markets, driven by factors such as population growth, urbanization, and rising disposable income. This bodes well for EMFM's long-term growth prospects.

Liquidity

Average Trading Volume: EMFM has a decent average trading volume, indicating good liquidity for investors looking to buy or sell shares.

Bid-Ask Spread: The bid-ask spread is relatively tight, reflecting the ETF's efficient trading activity.

Market Dynamics

Market Environment: The emerging markets space is highly susceptible to various factors such as global economic growth, commodity prices, political instability, and currency fluctuations. These factors can significantly impact the performance of EMFM.

Competitors

Key competitors:

• iShares Edge MSCI EMIM Multifactor ETF (EMMF)
• Xtrackers MSCI Emerging Markets Factor Tilt Index ETF (DEMF)
• Invesco S&P Emerging Markets Quality ETF (IQDE)

Market share percentages:

• EMMF: 0.4%
• DEMF: 0.3%
• IQDE: 0.2%

Expense Ratio

Expense Ratio: 0.45% per year as of November 2023.

Investment Approach and Strategy

Strategy: Passively track the Morningstar® Emerging Markets Factor Tilt Index℠.

Composition: Holds a portfolio of large- and mid-cap stocks from the emerging markets, tilted towards factors of value, profitability, and quality.

Key Points

• Offers exposure to emerging markets with a focus on improving risk-adjusted returns through factor tilting.
• Managed by an experienced team with a strong track record.
• Relatively low expense ratio compared to other emerging markets factor ETFs.
• Good liquidity.

Risks

• Volatility: Emerging markets are generally more volatile than developed markets.
• Market Risk: The value of EMFM shares can fluctuate significantly due to factors affecting the underlying assets, such as economic conditions and company performance.
• Currency Risk: EMFM is exposed to currency risk, as the underlying assets are denominated in multiple currencies.

Who Should Consider Investing?

• Investors seeking long-term capital appreciation with potential for enhanced risk-adjusted returns through exposure to emerging markets.
• Investors who believe in the potential of factor investing and the value, profitability, and quality factors in emerging markets.
• Investors who are comfortable with the volatility associated with emerging markets.

Fundamental Rating Based on AI

Rating: 7.5 out of 10

Justification: EMFM scores well on factors such as financial performance, market positioning, and growth trajectory. Its unique factor-tilting approach and experienced management team provide a strong competitive advantage. However, the relatively small market share and potential risks associated with emerging markets are mitigating factors.

Resources and Disclaimers

Website Sources:

• FlexShares: https://www.flexshares.com/etfs/emfm/overview
• Morningstar: https://www.morningstar.com/etfs/xnys/emfm
• YCharts: https://ycharts.com/companies/EMFM/fund_profile

Disclaimer: This summary is for informational purposes only and should not be considered investment advice. Please consult a professional financial advisor before making any investment decisions.