FlexShares ESG&Clmt Dev Mkts ex-US Cr’s management team is rated Average, but a solid investment process still helps this strategy retain its Morningstar Medalist Rating of Silver. The portfolio maintains a sizable cost advantage over competitors, priced within the least expensive fee quintile among peers.  

 The strategy's effective investment philosophy supports a High Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant underweight position in quality exposure and an overweight in yield exposure compared with category peers. Low quality exposure is attributed to stocks with higher financial leverage and lower profitability. And a high yield exposure is rooted in holding high dividend-paying or buyback stocks. The strategy’s management team earns an Average People Pillar rating. The strategy's parent organization earns the firm an Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

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Toronto-Dominion Bank

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. FlexShares ESG&Clmt Dev Mktsex-USCrIdxFd earns a High Process Pillar rating. The main contributor to the rating is the parent firm's five-year risk-adjusted success ratio of 70%. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median Morningstar Risk-Adjusted Return for the period. This fund tracks an index, which also increases its process rating. Historical data, like Morningstar's Active/Passive Barometer, shows that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The parent firm's strong risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.4 stars, contributes to the process as well.

The investment strategy as stated in the fund's prospectus is:  The investment seeks results that correspond generally to the price and yield performance of the Northern Trust® ESG & Climate Developed Markets ex‑US Core IndexSM.  The underlying index is designed to reflect the performance of a selection of companies that exhibit certain ESG characteristics, while also seeking to provide broad-market, core exposure to publicly traded equity securities issued by companies domiciled in developed market countries, and excluding the U.S. The fund will invest at least 80% of its total assets in the securities of the underlying index and in ADRs and GDRs based on the securities in the underlying index. The fund is non-diversified. 

 The portfolio is overweight in financial services by 3.3 percentage points in terms of assets compared with the category average, and its healthcare allocation is similar to the category. The sectors with low exposure compared to category peers are technology and industrials; however, the allocations are similar to the category. The portfolio is composed of 250 holdings and is similarly diversified as peers, with 17.5% of portfolio assets concentrated within the top 10 holdings. And in closing, in terms of portfolio turnover, on a year-over-year basis, 32% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

High

Process

Flexshares’s team is good but unexceptional, earning the strategy an Average People Pillar rating. There are three managers listed on the fund: Robert Anstine, Alan Aung, Steven Santiccioli. The team is well equipped, with an average of 12 years of portfolio management experience. Though they do not manage other products together, managers may manage them individually.  

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

Average

People

Northern Trust Asset Management, or NTAM, has a solid plan for improvement, but it will take time to assess execution under new leadership. The firm maintains an Average Parent rating.

NTAM President Daniel Gamba took over in April 2023 and promised to double down on the asset manager's strengths. That means fortifying relationships with Northern Trust Wealth Managements' ultra-high-net-worth and institutional clientele, whom NTAM was built to serve. NTAM will aim to strengthen the money market and index funds those clients favor, then nurture the rest of the firm's lineup and potentially expand it.

Change has trickled through the investment organization as well. For instance, in his two-year tenure, CIO Angelo Manioudakis has seen significant leadership turnover in the fixed-income organization. He also converted the municipal-bond team from a generalist model to a specialized one. That was probably overdue but still requires personnel change and time to acclimate.

Despite the shakeups, NTAM does a lot right. The quantitative strategies team, formed under now equity CIO Mike Hunstad, is a deep unit that lends expertise to systematic and discretionary active offerings. The firm has shown discipline in developing new products and rarely closes existing ones. NTAM isn't a cost leader, but it prices funds competitively and recently cut fees on several mutual funds.

Parent

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

FEDM tracks a principles-based index of large-cap companies from the developed markets outside the US that exhibit environmental, social, and corporate governance (ESG) characteristics.

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Sustainable investing offers another opportunity for advisors to have deeper, more meaningful relationships with their clients. ESG investing — or “sustainable investing” — continues to gain awareness, acceptance, and assets, but skepticism among advisors is still common, according to a FlexShares insight based on The Flexible Advisor podcast.

ESG Investing Offers Opportunity for Advisors to Better Connect with Clients

As sustainable investing continues to affirm its place among traditional strategies, many advisors assume that sustainable investing entails a trade-off in returns. “The facts have been for a long time that sustainable funds, on the whole, perform just as well as any other type of funds,” Jon Hale, director of ESG strategy at Morningstar, said [.

Research Shows ESG Funds Have Potential to Outperform Conventional Funds

ESG has risen to the center stage in recent years, heavily influencing investors' allocation decisions.  Companies face growing pressure from regulators and investors to address concerns such as climate change, worker health and safety, and diversity and inclusion.

Does Your ESG Portfolio Identify Potential Risks to Companies' Financials?

Now more than ever, especially with skyrocketing oil prices, environmental, social, and government (ESG) investing is becoming a core component of the capital markets. As the world looks to take the necessary measures to reduce its carbon footprint, look to niche areas like climate change for opportunity.

Take Advantage of the Green Economy With These Climate Change ETFs

FlexShares STOXX Global ESG Select Index Fund

FlexShares' top-performing ETFs last week largely have one commonality: they all integrate ESG criteria into their investment strategies. Surging commodity prices, exacerbated by Russia's invasion of Ukraine and the ensuing halt in Russian global imports, have emphasized the need for improving the scale of clean energy sources across the globe.

As Energy Prices Heat Up, ESG ETFs Surge

Environmental, social, and governance (ESG) investing has seen exponential growth over the past years. While it presents an opportune growth strategy, the question investors need to ask is whether the strategy they're using addresses future risk.

Four ETF Options That Take Future ESG Risk Into Account

Sustainable investing offers another way to manage risk in portfolios without limiting performance. In fact, over a one-year period, the S&P 500 ESG index has returned 20.25%, while the S&P 500 index has only had returns of 16.39%, according to S&P Dow Jones Indices.

3 Ways to Assess Potential Future Sustainability

With environmental, social, and governance (ESG) investing reaching a global scale, standards are developing to help add uniformity to the growing space. Organizations with a global reach are creating certain standards in ESG.

Global Standards Are Slowly Developing for ESG

A global finance coalition of investors, banks, and insurers controlling $130 trillion in assets said it would use that capital to hit net zero emissions targets in its investments by 2050. “The group, called the United Nations Glasgow Financial Alliance for Net Zero, is made up of 450 banks, insurers and asset managers in 45 [.

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