A smart beta exchange traded fund, the FlexShares Morningstar Emerging Markets Factor Tilt ETF (TLTE) debuted on 09/25/2012, and offers broad exposure to the Broad Emerging Market ETFs category of the market.
What Are Smart Beta ETFs?
For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.
Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
Managed by Flexshares, TLTE has amassed assets over $230.30 million, making it one of the average sized ETFs in the Broad Emerging Market ETFs. TLTE seeks to match the performance of the Morningstar Emerging Markets Factor Tilt Index before fees and expenses.
The Morningstar Emerging Markets Factor Tilt Index reflects the performance of a selection of equity securities designed to provide broad exposure to the global emerging equities markets, with increased exposure to small-capitalization stocks and value stocks.
Cost & Other Expenses
For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.
Annual operating expenses for TLTE are 0.59%, which makes it on par with most peer products in the space.
It's 12-month trailing dividend yield comes in at 5.14%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
When you look at individual holdings, Samsung Electronics Co Ltd Common Stock Krw 100 (A005930) accounts for about 3.09% of the fund's total assets, followed by Taiwan Semiconductor Manufacturing Co Ltd Common and Tencent Holdings Ltd Common Stock (0700.HK).
Its top 10 holdings account for approximately 14.11% of TLTE's total assets under management.
Performance and Risk
The ETF has lost about -20.16% so far this year and is down about -20.31% in the last one year (as of 09/20/2022). In the past 52-week period, it has traded between $46.06 and $62.68.
The ETF has a beta of 0.77 and standard deviation of 22.53% for the trailing three-year period, making it a medium risk choice in the space. With about 2805 holdings, it effectively diversifies company-specific risk.
FlexShares Morningstar Emerging Markets Factor Tilt ETF is a reasonable option for investors seeking to outperform the Broad Emerging Market ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
IShares Core MSCI Emerging Markets ETF (IEMG) tracks MSCI Emerging Markets Investable Market Index and the Vanguard FTSE Emerging Markets ETF (VWO) tracks FTSE Emerging Markets All Cap China A Inclusion Index. IShares Core MSCI Emerging Markets ETF has $62.44 billion in assets, Vanguard FTSE Emerging Markets ETF has $67.32 billion. IEMG has an expense ratio of 0.09% and VWO charges 0.08%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Broad Emerging Market ETFs.
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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FlexShares Morningstar Emerging Markets Factor Tilt ETF (TLTE): ETF Research Reports
iShares Core MSCI Emerging Markets ETF (IEMG): ETF Research Reports
Vanguard FTSE Emerging Markets ETF (VWO): ETF Research Reports
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.