FlexShares introduces volatility-adjusted US dividend ETFs

Jan 2nd, 2013 | By | Category: Equities

FlexShares, the exchange-traded funds (ETFs) platform of Northern Trust, has introduced three dividend-focused ETFs designed to help investors achieve their income needs while still participating in capital growth through the equity market.

FlexShares introduces volatility-adjusted US dividend ETFs

Shundrawn Thomas, head of Northern Trust’s ETF Group

The three NYSE-listed funds – which listed in December – seek to deliver a portfolio of stocks that emphasise long-term capital growth and income.

The funds invest in “quality” companies that provide dividend income while controlling for market risk.

Northern Trust defines quality as a function of various fundamental attributes that measure a company’s ability to sustain and grow its earnings and cash flow. These include: management, profitability and cash.

As well as focusing on quality dividend-paying stocks, the funds also seek to replicate the Northern Trust 1250 index, but with different target levels of market volatility or beta. The in-house Northern Trust 1250 Index is broadly reflective of the performance of the US equity market.

The funds include the FlexShares Quality Dividend Index ETF (QDF), which seeks to deliver a beta similar to that of the market (a beta of 1.0), the FlexShares Quality Dividend Dynamic Index ETF (QDYN), which seeks to deliver a beta greater than the market (1.0 – 1.5 times), and the FlexShares Quality Dividend Defensive Index ETF (QDEF), which strives to deliver a beta less than the market (0.5 – 1.0 times).

The funds are structured to mitigate sector, industry and security concentration risks, and come with a net expense ratio of 0.37% per annum.

Commenting on the launch, Shundrawn Thomas, head of Northern Trust’s ETF Group, said: “Our research shows that a high-quality, yield-focused equity position can potentially act as a return stabiliser for a broader portfolio, mitigate risk in volatile markets and provide higher dividend growth.”

He added: “The new equity funds are designed to outperform in a variety of market environments, including upward- and downward-trending markets.”

FlexShares, which launched in September 2011, currently offers 10 ETFs and has more than $2 billion in assets.

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