Northern Trust’s FlexShares introduces US quality large-cap ETF

Sep 25th, 2015 | By | Category: Equities

FlexShares, the exchange-traded funds brand of Northern Trust, has introduced the FlexShares US Quality Large Cap Index Fund (QLC), a multi-factor smart beta ETF investing in US large-cap equities that exhibit discernible quality, value and momentum characteristics.

Northern Trust unveil FlexShares smart beta ETF

Shundrawn Thomas, head of Northern Trust’s Funds and Managed Accounts Group.

The ETF is designed to outperform the broader US large-cap universe through factor tilts that have historically provided excess returns over market-cap weighted indices.

“Our empirically-based proprietary approach to investing in high quality companies is the foundation of the investment strategy,” said Shundrawn Thomas, head of Northern Trust’s Funds and Managed Accounts Group.

He added: “The FlexShares Quality Large Cap Index fund also offers targeted exposure to value and momentum factors providing investors with an efficient multi-factor core equity portfolio holding.”

The fund seeks to track the Northern Trust US Quality Large Cap Index which draws its constituents from the largest 600 companies, as measured by float-adjusted market capitalisation, within the Northern Trust 1250 Index. Constituents are ranked and selected based on characteristics of quality (based on management expertise, profitability and cash flow generation), value (using metrics such as book-to-market value and price-to-earnings ratios) and momentum (stocks whose share price is trending upwards). By combining factors which have historically exhibited low or negative correlation the strategy seeks to improve diversification and lessen potential drawdowns.

In order to manage risk versus the broader US large-cap universe, the fund’s index employs a series of constraints which are designed to control positioning versus the eligible universe (the top 600 companies within the Northern Trust 1250 Index). These include security, sector and industry level constraints as well as turnover and beta constraints.

As of 24 September 2015, the fund’s underlying index held 120 constituents, with largest allocation being to Apple (5.0%), Exxon Mobil (2.9%), Pfizer (2.4%), Intel (2.1%) and Gilead Sciences (2.0%). The largest sector allocations were to IT (21.2%), financials (15.8%), health care (12.8%), consumer discretionary (11.9%) and industrials (10.5%).

The ETF has been listed on the Nasdaq exchange and carries a 0.33% gross expense ratio.

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