FlexShares Morningstar Emerging Markets Factor Tilt Index Fund (TLTE) seeks to track the Morningstar Emerging Markets Factor Tilt Index, which measures emerging market stocks while overweighting companies with strong fundamental characteristics like profitability, growth, and financial health. This factor-tilted emerging markets equity ETF provides exposure to developing economies across Asia, Latin America, and other regions.
How It Works
TLTE uses a rules-based approach that starts with broad emerging markets exposure then tilts allocations toward stocks with superior quality, value, momentum, and low volatility factors. The fund employs market-cap weighting with factor score adjustments, meaning companies with stronger fundamentals receive higher allocations than pure market-cap weighting would suggest. Holdings are rebalanced semi-annually to maintain factor exposures while managing turnover costs across approximately 800-1,000 emerging market stocks.
Key Features
- Factor tilting methodology targets higher-quality emerging market companies while maintaining broad geographic diversification across developing economies
- Combines emerging markets exposure with systematic factor premiums that historically outperformed cap-weighted benchmarks over long periods
- Managed by FlexShares with focus on cost-efficient factor implementation and reduced tracking error versus pure factor strategies
Risks
- This ETF can lose value significantly during emerging markets crises, potentially declining 40-60% when currencies collapse or political instability strikes developing nations
- Factor tilting may underperform during periods when low-quality, speculative stocks outperform, creating tracking error versus broad emerging markets indices
- Currency fluctuations against the U.S. dollar can amplify losses since emerging market stocks are denominated in volatile local currencies without hedging
Who Should Own This
Best suited as a satellite holding (5-15% of equity allocation) for experienced investors with 7+ year time horizons seeking emerging markets exposure with factor enhancement. High risk tolerance required due to emerging markets volatility and currency risk. Appropriate for investors who understand factor investing and want systematic tilts toward higher-quality developing market companies.