Making its debut on 09/25/2012, smart beta exchange traded fund FlexShares Morningstar Emerging Markets Factor Tilt ETF (TLTE) provides investors broad exposure to the Broad Emerging Market ETFs category of the market.
What Are Smart Beta ETFs?
Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.
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.
On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.
Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.
Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.
Fund Sponsor & Index
The fund is managed by Flexshares. TLTE has been able to amass assets over $335.76 million, making it one of the average sized ETFs in the Broad Emerging Market ETFs. Before fees and expenses, this particular fund seeks to match the performance of the Morningstar Emerging Markets Factor Tilt Index.
This Index measures the performance of stocks located in emerging countries across the world with increased exposure to small-capitalization and value stocks. Stocks that are deemed to be small-capitalization or small-value have an overweighting in the index compared to their weight in a corresponding market-capitalization-weighted index.
Cost & Other Expenses
Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.
Operating expenses on an annual basis are 0.59% for TLTE, making it on par with most peer products in the space.
It's 12-month trailing dividend yield comes in at 1.83%.
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.
Taking into account individual holdings, Samsung Electronics (OTC:SSNLF) Co Ltd Common Stock Krw 100 (A005930) accounts for about 4.08% of the fund's total assets, followed by Tencent Holdings (OTC:TCEHY) Ltd Common Stock Hkd 0.00002 (0700.HK) and Msci Emgmkt Equity Index 19/mar/2021 Mesh1 Index (MESH1).
The top 10 holdings account for about 17.79% of total assets under management.
Performance and Risk
The ETF has gained about 8.20% and was up about 52.45% so far this year and in the past one year (as of 05/21/2021), respectively. TLTE has traded between $41.27 and $64.91 during this last 52-week period.
The fund has a beta of 0.90 and standard deviation of 22.60% for the trailing three-year period, which makes TLTE a medium risk choice in this particular space. With about 2128 holdings, it effectively diversifies company-specific risk.
Alternatives
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.
Vanguard FTSE Emerging Markets ETF (VWO) tracks FTSE Emerging Markets All Cap China A Inclusion Index and the iShares Core MSCI Emerging Markets ETF (IEMG) tracks MSCI Emerging Markets Investable Market Index. Vanguard FTSE Emerging Markets ETF has $79.72 billion in assets, iShares Core MSCI Emerging Markets ETF has $80.16 billion. VWO has an expense ratio of 0.10% and IEMG charges 0.11%.
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.
Bottom Line
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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FLEXS-MR EMFTIF (TLTE): ETF Research Reports
ISHARS-CR MS EM (IEMG): ETF Research Reports
VANGD-FTSE EM (VWO): ETF Research Reports
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