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Is FlexShares Morningstar Emerging Markets Factor Tilt ETF (TLTE) a Strong ETF Right Now?

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A smart beta exchange traded fund, the FlexShares Morningstar Emerging Markets Factor Tilt ETF (TLTE - Free Report) debuted on 09/25/2012, and offers broad exposure to the Broad Emerging Market ETFs category of the market.

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

Because the fund has amassed over $214.04 million, this makes it one of the average sized ETFs in the Broad Emerging Market ETFs. TLTE is managed by Flexshares. This particular fund seeks to match the performance of the Morningstar Emerging Markets Factor Tilt Index before fees and expenses.

The Morningstar Emerging Markets Factor Tilt Index reflects the performance of a selection of equity securities designed to provide broad exposure to the global emerging equities markets, with increased exposure to small-capitalization stocks and value stocks.

Cost & Other Expenses

Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.

Annual operating expenses for this ETF are 0.59%, making it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 5.19%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

Taking into account individual holdings, Samsung Electronics Co Ltd Common Stock Krw 100 (A005930) accounts for about 2.88% of the fund's total assets, followed by Taiwan Semiconductor Manufacturing Co Ltd Common and Msci Emgmkt Equity Index 16/sep/2022 Mesu2 Index (MESU2).

Performance and Risk

So far this year, TLTE has lost about -21.03%, and is down about -20.74% in the last one year (as of 11/22/2022). During this past 52-week period, the fund has traded between $41.69 and $60.96.

The ETF has a beta of 0.76 and standard deviation of 23.17% for the trailing three-year period, making it a medium risk choice in the space. With about 2804 holdings, it effectively diversifies company-specific risk.

Alternatives

FlexShares Morningstar Emerging Markets Factor Tilt ETF is not a suitable option for investors seeking to outperform the Broad Emerging Market ETFs segment of the market. Instead, there are other ETFs in the space which investors should consider.

IShares Core MSCI Emerging Markets ETF (IEMG - Free Report) tracks MSCI Emerging Markets Investable Market Index and the Vanguard FTSE Emerging Markets ETF (VWO - Free Report) tracks FTSE Emerging Markets All Cap China A Inclusion Index. IShares Core MSCI Emerging Markets ETF has $62.12 billion in assets, Vanguard FTSE Emerging Markets ETF has $66.45 billion. IEMG has an expense ratio of 0.09% and VWO charges 0.08%.

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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