Northern Trust Enters the Foreign Dividend ETF Market

TheStreet.com

NEW YORK TheStreet -- The new FlexShares International Quality Dividend Defensive Index Fund hopes to bring something new to the burgeoning field of broad, international dividend exchange-traded funds.

The word "quality" in the name of this ETF refers to a qualitative scoring method related to fundamental health of the constituent holdings. The word "defensive" in the name of the fund relates to the holdings, which have betas of 0.50-1.00. (Beta is commonly a measure of volatility, and the lower the beta the lower the volatility should be.)

The country weightings favor the U.K., with 14% of the fund; Japan, with 10.8%; Australia and Canada, each with 9.5%; and France, with 7.5%. Italy also has a large weighting, at 4%. Financials is the largest sector, at 28%, with energy the only other sector to get a double digit weighting, at 11.8%.

IQDE has 215 holdings with largest being GlaxoSmithKline at 3.5%. There are plenty of other names in the fund that will be familiar, such as Total and Vodaphone .

The lack of single-stock concentration is a positive attribute. One of the benefits of investing in a broad-based index fund such as IQDE is not having to research and closely monitor individual stocks.


Unfortunately for Northern Trust , the parent of FlexShares, the fund seems very similar to broad, international, dividend-oriented ETFs already offered by other fund companies.

Both the iShares DJ International Select Dividend ETF and the WisdomTree DEFA Fund have established themselves in this niche, raising $1.9 billion and $467 million in assets, respectively, and there are similar funds from other providers.


All three funds have similar sector weightings, with financials being the largest in all three. The U.K. features prominently in all three funds. Although Japan has a large weighting in IQDE and DWM, IDV has no Japanese exposure. Another overlap is the big four Australian banks, which have a 5.86% weighting in IQDE, 6.14% in DWM and 11.1% in IDV.

It is likely that me-too funds will continue to list as more new fund companies or brand names enter the market. Like most fund companies, Northern Trust wants to offer a complete product offering that covers most, if not all, of the broad market segments.


The risk to fund holders is that a me-too fund or product line never gains traction and closes. The FlexShares brand is not Northern Trust's first foray into the ETF market. In 2008 the firm launched a comprehensive suite of single-country funds under the NETS brand name. But the effort was also second to market after the iShares single-country funds, and the NETS funds were closed in a matter of months.

At the time of publication, Nusbaum had no positions in securities mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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