Environmental, social, and governance (ESG) investing is increasingly taking center stage among investors whose intention is to build a portfolio that aligns with their values. As such, ESG investing is of increasing interest to the financial advisors who serve these clients. Of the three legs of the ESG stool, the social aspect often proves difficult to define. Gauging how well a particular company fits the social requirements of an ESG strategy begins with a deeper understanding of both the activities "social" encompasses, as well as the outcomes they're intended to produce.
Understanding the drivers of corporate value is a critical aspect of portfolio management. Some operational elements of a company, such as environmental stewardship, management decision-making, or corporate culture may not be immediately apparent in the organization's financial statements. Such factors can play a pivotal role in a company's long-term performance.
The popularity of ETF investing has given rise to the growth of other exchange-traded products (ETPs). One such vehicle is the ETN, or exchange traded note. The number of ETFs in the marketplace and the value of their underlying assets are still exponentially higher than for ETNs. While there are many similarities between ETFs and ETNs, investors need to understand the differences, too.
The debate over the benefits of active management–in the form of generating portfolio performance over an index–has been going on for decades.
A 2017 study from S&P of over 2,800 funds over a rolling period of 15 years found that over 80% of large-cap active equity managers did not beat benchmark market indexes. 1 This study included indexes tied to small-cap, mid-cap, emerging market, and international equities. The study also found that manager selection also did not improve market performance results over indexing.
Real assets are different than financial assets like stocks and bonds. Real assets include gold and other precious metals, commodities, real estate, and oil, among others. These assets have value due to their physical properties rather than as a financial vehicle. Our analysis shows that real assets are generally not highly correlated with stocks and bonds, thus potentially adding diversification to a portfolio. Asset correlation is a measure of how investments move in relation to one another and when. When assets move in the same direction at the same time, they are considered to be highly correlated. When one asset tends to move up when the other goes down, the two assets are considered to be negatively correlated.
We believe FlexShares ETFs beneficial investor offerings include our growing innovative fund product lineup. Partnering with seasoned index investment professionals using quantitative research, our alternatively weighted indices and mixedasset classes provide investors with funds that are designed to help meet a variety of investor financial goals.
Robust infrastructure is crucial for growing and enriching economies. In the wake of the global economic crisis, how will nations fund state-of-the-art bridges, toll roads, airports, seaports, and data towers? Governments are relying more often on privatization. In accordance with shifts in economic and political policies, governments around the world are using privatization for many large mission-critical projects. Investors, for their part, may be attracted by the chance for equity exposure as well as the bonus benefit of an asset with intrinsic value, predictable expenditures, and stable cash flows.
Why Invest in Real Estate?
History shows that real estate can offer intrinsic value and income potential for many investors. We believe investors use this asset class as an integral part of a robust portfolio risk management strategy. Need a hedge against long-term inflation? Real estate has often demonstrated its effectiveness, along with common stocks, in helping investors achieve this goal. Due to low correlation (i.e. linkage or dependency) with securities, we believe real estate can be used for portfolio diversification to provide access to income growth.
In periods of anticipated growth and inflation, we recommend investors:
- understand the drivers of inflation
- devote adequate attention to long-term planning
- consider innovative choices for asset allocation
Broader diversification in longer-term scenarios increases chances for portfolio resistance. We invite investors to consider some core strategies for long-term inflation hedging.
Traditional market cap weighted indexing, such as with ETFs that track benchmarks like the S&P 500, attempt to replicate the holdings and weightings of the index. The stocks having the most weight in the index have the most weight in the ETF.
With the growth of strategic beta and factor investing, the use of tilting can enhance exposure to markets like U.S. equities, developed markets, emerging markets, and others, with a focus on the portions of these market segments that have the possibility of adding the most value for investors through an alternative weighting methodology.
Before investing, carefully consider the FlexShares investment objectives, risks, charges and expenses. This and other information is in the prospectus, a copy of which may be obtained by visiting www.flexshares.com. Read the prospectus carefully before you invest. Foreside Fund Services, LLC, distributor.
An investment in FlexShares is subject to numerous risks, including possible loss of principal. Fund returns may not match the return of the respective indexes. The Funds are subject to the following principal risks: asset class; commodity; concentration; counterparty; currency; derivatives; dividend; emerging markets; equity securities; fluctuation of yield; foreign securities; geographic; income; industry concentration; inflation-protected securities; interest rate / maturity risk; issuer; management; market; market trading; mid cap stock; natural resources; new funds; non-diversification; passive investment; privatization; small cap stock; tracking error; value investing; and volatility risk. A full description of risks is in the prospectus.