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FlexShares launches Quality Low Volatility suite of ETFs

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Northern Trust’s FlexShares Exchange Traded Funds has launched a Quality Low Volatility suite of three funds, the FlexShares US Quality Low Volatility Index Fund (NYSE: QLV); Developed Markets ex-US Quality Low Volatility Index Fund (NYSE: QLVD); and Emerging Markets Quality Low Volatility Index Fund (NYSE: QLVE).

The FlexShares Quality Low Volatility Index Funds utilise a quality screen in an effort to provide exposure to high-quality companies with lower absolute risk, thereby limiting potential future volatility. The quality screen analyses a broad universe of equities based on key indicators such as profitability, management efficiency, and cash flow, and then excludes the bottom 20 per cent of stocks with the lowest quality score. The index is then subject to regional, sector and risk-factor constraints, in order to manage unintended style factor exposures, significant sector concentration, and high turnover.

“We are delighted to offer investors the next evolution of low volatility-based strategies,” says Christopher Huemmer, Senior Investment Strategist at FlexShares. “Existing low-volatility strategies often rely exclusively on historical return data and fail to account for future price fluctuations and unintended risks. Our quality-focused approach addresses these flaws in an effort to provide a more efficient means of accessing the low volatility factor.”

Low volatility strategies have come to the forefront of investor interest amid increased volatility stemming from market swings. According to Morningstar, in the first four months of the year, funds trying to mitigate risk raised nearly USD10 billion. While this is the first quality low volatility fund for FlexShares, in 2014 Northern Trust Asset Management introduced its first high quality, low volatility strategy and now has three.

“Recent market swings have put a spotlight on the need for strategies that can potentially help in an era of investor uncertainty,” says Darek Wojnar, Head of Funds and Managed Accounts at Northern Trust Asset Management. “We have leveraged years of experience in equities research and our track record in quality low volatility strategies to construct the Quality Low Volatility ETF suite, which we believe can reduce portfolio risk and provide competitive performance for our clients.”

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