There is no shortage of emerging markets ETFs on the market
today. In particular, investors have a plethora of funds offering
exposure to multiple countries from which to choose. That does
not stop ETF issuers from bringing more of these funds to
Take the example of the FlexShares Morningstar Emerging Market
Factor Tilt Index ETF (NYSE:
), which debuted just last week. FlexShares, a unit of custodial
bank Northern Trust (NASDAQ:
), is a new entrant to the ETF game. The firm unveiled four ETFs
just over a year ago, including the FlexShares Morningstar Global
Upstream Natural Resources Index ETF (NYSE:
Unbeknownst to many investors, the FlexShares suite, GUNR
has proven quite successful
as the firm's first four funds have over $1.6 billion in assets
under management combined.
Do not rule out the FlexShares Morningstar Emerging Market
Factor Tilt Index ETF as a contender to rapidly gain assets.
FlexShares ETFs have entered crowded arenas before only to
flourish with GUNR standing as a prime example.
The FlexShares Morningstar Emerging Market Factor Tilt Index
ETF is pricy compared to other well-known multi-country emerging
markets ETFs. TLTE charges 0.65 percent per year, well above the
fees found on the Vanguard MSCI Emerging Markets ETF (NYSE:
TLTE does have its high points. The new ETF offers exposure to
all cap spectrums, meaning large-caps represent just 47.6 percent
of the fund's weight. Even micro-caps land an allocation of 3.2
percent. TLTE "applies a tilt to small-cap and value stocks using
a multi-factor modeling modeling approach that attempts to
enhance portfolio risk/return characteristics,"
according to the fund's fact sheet
At the sector level, financials rule the roost with an
allocation of 22.2 percent. Technology, materials, consumer
discretionary and energy names all receive double-digit weights
with industrials barely missing out on a 10 percent
The biggest flaw with TLTE is not its expense ratio nor is it
the heavy weight to financials. Regarding the latter factor, it
is something investors familiar with emerging markets ETFs have
to come to expect as it is often bank stocks that are among the
largest names in an array of developing nations.
Rather, the potential black mark against TLTE is that the fund
makes a mistake that so many other ETF sponsors have made with
multi-country emerging markets funds. That is granting large
weights to South Korea and Taiwan. The two countries combine for
over 29 percent of TLTE's weight even though their status as
is dubious at best
ETFs tracking indexes created by MSCI, which continues to
classify South Korea and Taiwan as emerging markets while other
marquee index providers do not, have an excuse, but TLTE does not
track an index constructed by MSCI. Throw in a 9.2 percent weight
to Hong Kong, also not a developing nation, and TLTE becomes a
good option for a more conservative investor looking for
TLTE features minimal exposure to Asian growth markets such as
Indonesia and Malaysia and its Latn America exposure seems to
consist of a combined 17 percent weight to Brazil and Mexico.
Unidentified countries make up 11.8 percent of TLTE's weight, but
without knowing if "other" consists of Chile, Colombia, the
Philippines and Thailand (markets that plenty of investors want
exposure to), it is hard to praise TLTE's country lineup.
This is not to say TLTE is a bad ETF. It is too young to say
that if anything, the methodology behind the fund combined with
small-cap and value tilt could prove to be efficacious.
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