FlexShares ESG & Climate Developed Markets ex-US Core Index Fund (FEDM) seeks to track the Northern Trust Developed Markets ex-US ESG & Climate Core Index, which measures the performance of developed market stocks outside the United States while applying environmental, social, and governance (ESG) screens and climate-focused criteria to exclude companies with poor sustainability practices.
How It Works
FEDM uses a passively managed, market-capitalization-weighted approach that mirrors its benchmark index after applying ESG and climate filters. The fund excludes companies involved in controversial business activities, those with poor ESG ratings, and firms with high carbon intensity or fossil fuel exposure. Holdings are rebalanced quarterly to maintain index alignment and ESG compliance. The portfolio typically holds 800-1,200 international developed market stocks across Europe, Japan, and other developed economies.
Key Features
- Combines broad international developed market exposure with ESG and climate screening, filtering out unsustainable companies
- Zero expense ratio makes it one of the most cost-effective ESG international equity ETFs available
- Launched in 2021, representing newer generation ESG methodology with enhanced climate risk considerations
Risks
- This ETF can lose value when international developed markets decline, potentially dropping 20-30% during global recessions or European crises
- ESG screening may cause performance to lag traditional international indexes during periods when excluded sectors outperform significantly
- Currency fluctuations against the U.S. dollar can reduce returns even when foreign stocks perform well in local terms
Who Should Own This
Best suited as a core international holding (15-30% of equity allocation) for ESG-conscious investors with 5+ year time horizons seeking developed market diversification outside the U.S. Medium-to-high risk tolerance required due to international equity volatility. Appeals to investors prioritizing sustainable investing without sacrificing broad market exposure or paying high fees.