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FlexShares Makes A Big Low Vol ETF Splash

ETF Professor

FlexShares, a major purveyor of smart beta exchange traded funds, is throwing its weight around in the low volatility ETF arena in a big way with the introduction of three funds that combine that investment factor with the quality factor.

What Happened

The new FlexShares ETFs are the FlexShares US Quality Low Volatility Index Fund (NYSE: QLV), FlexShares Developed Markets ex-US Quality Low Volatility Index Fund (NYSE: QLVD) and the FlexShares Emerging Markets Quality Low Volatility Index Fund (NYSE: QLVE).

Traditional low volatility ETFs focus on that factor and may or may not integrate other investment styles by incident. Conversely, the new FlexShares funds combine the low volatility and quality factors.

Why It's Important

QLV tracks the Northern Trust Quality Low Volatility Index. That benchmark measures stocks' management efficiency, cash flow and profitability to arrive at a quality score. Those financially sturdy companies are then subject to some sector, industry and individual security constraints within the index. QLV's largest holding, Johnson & Johnson (NYSE: JNJ), accounts for just 4.5% of the new ETF's weight.

QLV holds 133 stocks and allocates 18.59% of its weight to the technology sector, which is a significant overweight to that group relative to legacy low volatility ETFs. QLV charges 0.22% per year, or $22 on a $10,000 investment.

The FlexShares Developed Markets ex-US Quality Low Volatility Index Fund uses a similar approach with ex-US developed markets stocks. That new ETF tracks the Northern Trust Developed Markets ex US Quality Low Volatility Index.

QVLD can be an alternative to cap-weighted developed markets funds as the new ETF devotes a combined 45.70% of its weight to Japan, the U.K. and Canada. Primarily a large-cap fund, QVLD breaks new ground because most factor-based developed markets ETFs are usually value or low volatility funds and do intentionally target quality stocks.

QVLD holds 175 stocks, none of which exceed weights of 3.67%, and charges 0.32% per year.

What's Next

The FlexShares Emerging Markets Quality Low Volatility Index Fund is the emerging markets offering in the new trio of FlexShares funds. That ETF follows the Northern Trust Emerging Markets Quality Low Volatility Index.

Apparently, neither Mexico nor Russia meet QLVE's standards because neither of those developing economies are found in the found. In fact, Brazil is the only Latin American country among QLVE's geographic weights. China and Taiwan combine for over 42% of the fund's weight.

QLVE charges 0.40% per year.

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