FlexShares Developed Markets ex-US Quality Low Volatility Index Fund (QLVD) seeks to track the Northern Trust Developed Markets ex-US Quality Low Volatility Index, which selects international stocks from developed markets excluding the U.S. that demonstrate both high quality fundamentals and historically low price volatility.
How It Works
QLVD uses a rules-based methodology that screens developed market stocks outside the U.S. for quality metrics like return on equity, debt-to-equity ratios, and earnings stability, then selects those with the lowest historical volatility. The fund employs a modified market-cap weighting approach that tilts toward lower-volatility names while maintaining sector diversification. Rebalancing occurs semi-annually to maintain the quality and low-volatility characteristics of the portfolio.
Key Features
- Combines quality screening with volatility targeting, potentially reducing drawdowns during market stress while maintaining growth exposure
- Focuses exclusively on developed international markets, providing geographic diversification away from U.S. equity concentration
- Modified weighting methodology emphasizes stability over pure market-cap allocation, potentially smoothing returns over time
Risks
- This ETF can lose value when international markets decline, though losses may be smaller than broad market indices due to low-volatility focus
- Currency fluctuations against the U.S. dollar can significantly impact returns, adding volatility despite the low-volatility stock selection process
- Quality and low-volatility stocks may underperform during strong bull markets when investors favor higher-risk, higher-growth companies
Who Should Own This
Best suited as a satellite holding (10-25% of international allocation) for conservative investors with 3+ year time horizons seeking reduced volatility in their international equity exposure. Low-to-medium risk tolerance required. Works well for investors approaching retirement who want international diversification without the full volatility of traditional international ETFs.