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

 The strategy's investment process inspires confidence and earns a High Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in corporate bonds and A rated bonds compared with category peers. The team managing the passive strategy earns the strategy an Average People Pillar rating. The strategy's parent organization earns the firm an Average Parent Pillar rating, and this rating is inherited from vehicles belonging to the same branding entity and is indirectly assigned by an analyst.

Analyst Rating

FlexShares ESG&Clmt Invm Grd CorpCrIdxFd earns a High Process Pillar rating. 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. The main contributor to the rating is the parent firm's five-year risk-adjusted success ratio of 78%. 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, such as 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 superior risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.3 stars, supports 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 Investment Grade U.S. Corporate Core IndexSM.  The underlying index seeks to reflect the performance of a selection of U.S.-dollar-denominated corporate bonds issued by companies that exhibit certain ESG characteristics, while also seeking to provide broad-market, core exposure to U.S.-dollar-denominated investment grade corporate bonds of U.S. and non‑U.S. issuers. Under normal circumstances, and the fund will invest at least 80% of its total assets in the securities of the underlying index. The fund is non-diversified.  

 This strategy's 12-month yield is 4.3%, which is neck-and-neck with its average peer. The portfolio's average surveyed credit quality is on par with peers, with both the fund and the average being rated BBB. In terms of long-term interest-rate risk, this strategy is on par with peers. The longer a strategy's duration, the more sensitive it is to shifts in interest rates. This fund, with a 7.2-year duration, is expected to gain 7.2% of its net asset value if interest rates drop by 1 percentage point, and vice versa.

High

Process

Flexshares’s team receives An Average People Pillar rating. The main contributor to the rating is its parent firm's five-year success ratio of 65%. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median return for the period. A low cost, with fees that rank in its category's least costly 20%, also contributes to the rating. Fees reduce net returns, so the managers have a lower expense hurdle to overcome. Lastly, the rating is limited by the parent firm's five-year retention rate of 68%, which suggests it could do more to hold onto its portfolio managers.

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 Investment Grade Corporate Core Index Fund

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