Summary Prospectus
FlexShares®
US Quality Large Cap
Index Fund| March 1, 2024 |
Ticker: QLC |
Stock Exchange: Cboe BZX Exchange, Inc. |
Before you invest, you may want to review the Fund’s statutory
Prospectus, which contains more information about the Fund and its risks. You can find the Fund’s statutory Prospectus, reports to shareholders, and other
information about the Fund online at www.flexshares.com/prospectus. You can also get this information at no cost by calling 1-855-FLEXETF (1-855-353-9383) or by
sending an e-mail request to info@flexshares.com. The Fund’s statutory Prospectus and Statement of Additional Information, both dated March 1, 2024, as
supplemented, are incorporated by reference into this summary prospectus and may be obtained, free of charge, at the website, phone number or e-mail address noted
above.
Investment Objective
The Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Northern Trust Quality Large
Cap IndexSM (the “Underlying Index”).
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold and sell shares of the
Fund. Under the Fund’s Investment Advisory Agreement, the Fund is responsible for
the following expenses: interest expenses, brokerage commissions and other trading expenses, fees and expenses of the independent trustees and their independent legal counsel, taxes and other
extraordinary costs such as litigation and other expenses not incurred in the ordinary
course of business. You will also incur usual and customary brokerage commissions and fees to financial intermediaries when buying or selling shares of the Fund in the secondary market, which are not
reflected in the example that follows:
| Annual Fund Operating Expenses (expenses that you pay each
year as a percentage of the value of your investment) | |
| Management Fees |
0.25% |
| Distribution (12b-1) Fees |
0.00% |
| Other Expenses |
0.01% |
| Total Annual Fund Operating Expenses |
0.26% |
| Expense Reimbursement(1) |
-0.01% |
| Total Annual Fund Operating Expenses After Expense
Reimbursement |
0.25% |
(1)
Northern Trust Investments, Inc. (“NTI”) has contractually
agreed to reimburse a portion of the operating expenses of the Fund
(other than 12b-1 Fees, Tax Expenses, Extraordinary Expenses, and Acquired Fund Fees and Expenses) to the extent the “Total Annual Fund Operating Expenses” exceed 0.25%. This contractual
limitation may not be terminated before March 1, 2025 without the approval of the Fund’s Board of Trustees. The Fund’s Board of Trustees may terminate the contractual agreement
at any time if it determines that it is in the best interest of the Fund and its shareholders.
Example
The following Example is intended to help you compare the cost of investing in the Fund with the
cost of investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then sell all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund’s
operating expenses remain the same (taking into account the expense reimbursement
arrangement for one year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| 1 Year |
$26 |
| 3 Years |
$83 |
| 5 Years |
$145 |
| 10 Years |
$330 |
Portfolio Turnover. The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A
higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual
fund operating expenses or in the Example, affect the Fund’s performance.
Portfolio turnover may vary from year to year, as well as within a year. During the
most recent fiscal year, the Fund’s portfolio turnover rate was 20% of the average value of its portfolio.
Principal Investment Strategies
The Underlying Index is designed to reflect the performance of a selection of companies that, in
aggregate, possess greater exposure to quality, value and momentum factors relative to
a universe of publicly-traded U.S. large-capitalization equity securities. This universe (the “Starting Universe”) is comprised of the 600 largest companies in the Northern Trust 1250 Index, a
float-adjusted market-capitalization weighted index of U.S. companies, as determined by
the Index Provider, at the time of reconstitution. The Underlying Index is designed to maximize exposure to
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FlexShares® US Quality
Large Cap Index Fund
Page 2
the composite of factors (quality, value, and momentum) while minimizing the overall risk of the Underlying Index relative to the Starting Universe.
To derive the Underlying Index, NTI, acting in its capacity as index provider (the “Index
Provider”), ranks all constituents of the Starting Universe using a Northern Trust
proprietary blended multi-factor score. This score is designed to measure companies
based on the quantitative assessment of their respective (a) quality (i.e., a factor that
seeks to identify companies that exhibit financial strength and stability relative to
the Starting Universe); (b) value (i.e., a factor reflecting the current worth a company relative to its own historical value, book value or valuation versus peers); and (c) momentum (i.e., a
factor that reflects market sentiment and changes in security price over a given time
period). The Index Provider then uses an optimization process to select and weight eligible securities in order to maximize the overall blended multi-factor score relative to the Starting Universe and to
manage systematic risk utilizing several constraints. The optimization also includes
sector, industry, single-security weight, beta (i.e. market sensitivity, relative to the Starting Universe), liquidity, constituent and turnover constraints so that these index characteristics vary within acceptable
bands relative to the Starting Universe. The Underlying Index is reconstituted on a
quarterly basis. The Fund generally reconstitutes its portfolio in accordance with the Underlying Index. As of December 31, 2023, the Underlying Index was comprised of 173 securities with a market capitalization
ranging from $8.7 billion to $3.0 trillion.
NTI uses a “passive” or indexing approach to try to achieve
the Fund’s investment objective. Unlike many investment companies, the Fund does
not try to “beat” the index it tracks and does not seek temporary defensive positions when markets decline or appear overvalued.
NTI uses a representative sampling strategy to manage the Fund. “Representative sampling” is investing in a representative sample of securities
that collectively has an investment profile similar to the Underlying Index. The Fund
may or may not hold all of the securities that are included in the Underlying Index.
The Fund reserves the right to invest in substantially all of the securities in its Underlying Index in approximately the same proportions (i.e., replication) if NTI determines that it is in the
best interest of the Fund.
The Fund generally will invest under normal circumstances at least 80% of its total assets (exclusive of collateral held from securities lending) in the
securities of its Underlying Index. The Fund may also invest up to 20% of its assets in
cash and cash
equivalents, including shares of money market funds advised by NTI or its affiliates, futures contracts and options on futures, as well as securities not included in the Underlying Index, but which NTI
believes will help the Fund track its Underlying Index.
The Underlying Index is created and sponsored by NTI, as
the Index Provider. NTI also serves as the investment adviser to the Fund. The Index
Provider determines the composition and relative weightings of the securities in the
Underlying Index and publishes information regarding the market value of the Underlying
Index.
The Fund may lend securities representing up to one-third of the value of the Fund’s total
assets (including the value of the collateral received).
Industry Concentration Policy. The Fund will
concentrate its investments (i.e., hold 25% or more of its total assets) in a
particular industry or group of industries to approximately the same extent that the Underlying Index is concentrated. As of December 31, 2023, the Underlying Index was concentrated in the Information Technology
sector. The components of the Underlying Index, and the degree to which these
components represent certain industries or sectors, may change over time.
Principal Risks
As with any investment, you could lose all or part of your investment in the Fund, and the
Fund’s performance could trail that of other investments. The Fund is subject to certain risks, including the principal risks noted below, any of which may adversely affect the
Fund’s net asset value (“NAV”), trading price, yield, total return and ability to meet its investment objective. Each risk noted below is considered a principal risk of investing in
the Fund, regardless of the order in which it appears. The significance of each risk
factor below may change over time and you should review each risk factor carefully.
Equity Securities Risk is the risk that the values of the equity securities owned by the Fund may be more volatile and underperform other asset classes and the general securities markets.
Concentration Risk is the risk that, if the Fund is concentrated in a particular industry or group of industries, the
Fund is likely to present more risks than a fund that is broadly diversified over
several industries or groups of industries. Compared to the broad market, an individual
industry may be more strongly affected by changes in the economic climate, broad market
shifts, moves in a particular dominant stock or regulatory changes.
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FlexShares® US Quality
Large Cap Index Fund
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•Information Technology Sector Risk is the risk that securities of technology companies may be subject to greater price volatility than securities of
companies in other sectors. These securities may fall in and out of favor with
investors rapidly, which may cause sudden selling and dramatically lower market prices. Technology securities also may be affected adversely by changes in technology, consumer and business
purchasing patterns, government regulation and/or obsolete products or services.
Market Risk is the risk that the value of the Fund’s investments may increase or decrease in response to expected, real or perceived economic, political or
financial events in the U.S. or global markets. The frequency and magnitude of such
changes in value cannot be predicted. Certain securities and other investments held by the Fund may experience increased volatility, illiquidity, or other potentially adverse effects in response to changing
market conditions, inflation, changes in interest rates, lack of liquidity in the bond
or equity markets, or volatility in the equity markets. Market disruptions caused by local or regional events such as financial institution failures, war, acts of terrorism, the spread of infectious illness
(including epidemics and pandemics) or other public health issues, recessions or other
events or adverse investor sentiment could have a significant impact on the Fund and
its investments and could result in the Fund’s shares trading at increased premiums
or discounts to the Fund’s NAV. During periods of market disruption or other
abnormal market conditions, the Fund’s exposure to the risks described elsewhere in this summary will likely increase.
Index Risk is the risk that the Fund would not necessarily buy or sell a security unless that security is
added to or removed from, respectively, the Underlying Index, even if that security
generally is underperforming, because unlike many investment companies, the Fund does not utilize an investing strategy that seeks returns in excess of the Underlying Index. Additionally, the Fund
rebalances and/or reconstitutes its portfolio in accordance with the Underlying Index,
and, therefore, any changes to the Underlying Index’s rebalance and/or reconstitution schedule will result in corresponding changes to the Fund’s rebalance and/or reconstitution schedule.
Tracking Error Risk is the risk that the Fund’s performance may vary from the performance of the Underlying
Index as a result of creation and redemption activity, transaction costs, expenses and
other factors. Market disruptions, regulatory restrictions or other abnormal market
conditions could have an adverse effect on the Fund's ability to adjust its exposure to
required levels in order to track
its Underlying Index or cause delays in the Underlying Index's rebalancing schedule. During any such
delay, it is possible that the Underlying Index, and, in turn, the Fund will deviate
from the Underlying Index's stated methodology and therefore experience returns different than those that would have been achieved under a normal rebalancing or reconstitution schedule.
Sampling Risk is the risk that the Fund’s use of a representative sampling approach may result in increased
tracking error because the securities selected for the Fund in the aggregate may vary
from the investment profile of the Underlying Index. Additionally, the use of a representative sampling approach may result in the Fund holding a smaller number of securities than the Underlying
Index, and, as a result, an adverse development to an issuer of securities that the
Fund holds could result in a greater decline in NAV than would be the case if the Fund held all of the securities in the Underlying Index.
Momentum Risk is the risk that securities that have had positive momentum compared to other securities may be more volatile than a broad cross-section of
securities or that returns on securities that have previously exhibited positive
momentum are less than returns on other securities or the overall stock market. Momentum can turn quickly and cause significant variation from other types of investments.
Value Investing Risk is the risk that the Fund’s investment in companies whose securities are believed to be
undervalued, relative to their underlying profitability, will not appreciate in value
as anticipated.
Quality Factor
Risk is the risk that the past performance of companies that have exhibited quality
characteristics does not continue or the returns on securities issued by such companies
may be less than returns from other styles of investing or the overall stock market. There may be periods when quality investing is out of favor and during which time the Fund's performance may
suffer.
Authorized Participant
Concentration Risk is the risk that the Fund may be adversely affected because it has a
limited number of institutions that act as authorized participants (“Authorized
Participants”). Only an Authorized Participant may engage in creation or redemption transactions directly with the Fund and none of those Authorized Participants is obligated to engage in creation
and/or redemption transactions. To the extent that these institutions exit the business
or are unable or unwilling to proceed with creation and/or redemption orders with respect to the Fund and no other Authorized Participant is able or willing
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FlexShares® US Quality
Large Cap Index Fund
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to step forward to create or redeem Creation Units (as defined below), Fund shares may trade at a discount to NAV and possibly face trading halts and/or
delisting.
Calculation Methodology Risk is the risk that the Underlying Index’s calculation methodology or sources of
information may not provide an accurate assessment of included issuers or correct
valuation of securities, nor is the availability or timeliness of the production of the Underlying Index guaranteed. A security included in the Underlying Index may not exhibit the characteristic or
provide the specific exposure for which it was selected and consequently a Fund's
holdings may not exhibit returns consistent with that characteristic or exposure.
Market Trading Risk is the risk that the Fund faces because its shares are listed on a securities exchange, including the potential lack of an active market for
Fund shares, losses from trading in secondary markets, periods of high volatility and
disruption in the creation/redemption process of the Fund. ANY OF THESE FACTORS MAY LEAD TO THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV.
Trading in Fund shares may be halted due to market conditions or for reasons that, in the view of its listing exchange, make trading in the shares inadvisable.
The market prices of Fund shares will generally fluctuate in accordance with changes in
its NAV, changes in the relative supply of, and demand for, Fund shares, and changes in the liquidity, or the perceived liquidity, of the Fund’s holdings.
Derivatives Risk is the risk that derivatives may pose risks in addition to and greater than those associated with
investing directly in securities, currencies and other instruments, may be illiquid or
less liquid, more volatile, more difficult to value and leveraged so that small changes in the value of the underlying instrument may produce disproportionate losses to the Fund. Derivatives are
also subject to counterparty risk, which is the risk that the other party to the
transaction will not perform its contractual obligations. The use of derivatives is a highly specialized activity that involves investment techniques and risks different from those associated with investments in
more traditional securities and instruments.
•Futures
Contracts Risk is the risk that there will be imperfect correlation between the change
in market value of the Fund’s securities and the price of futures contracts,
which may result in the strategy not working as intended; the possible inability of the Fund to sell or close out a futures contract at the desired time or price; losses due to unanticipated market
movements, which potentially are unlimited; and the possible inability of
NTI to correctly predict the direction of securities’ prices, interest
rates, currency exchange rates and other economic factors, which may make the Fund’s returns more volatile or increase the risk of loss.
•Options Contracts Risk Options contracts give the holder of the option the right to buy (or to sell) a position in a security or in a contract to the writer of the option, at a certain price. They are subject to
correlation risk because there may be an imperfect correlation between the options and
the securities markets that cause a given transaction to fail to achieve its objectives.
The successful use of options depends on the investment adviser’s ability to
predict correctly future price fluctuations and the degree of correlation between the
options and securities markets. Exchanges can limit the number of positions that can be
held or controlled by the Fund or the investment adviser, thus limiting the ability to
implement the Fund’s strategies.
Securities Lending Risk is the risk that the
Fund may lose money because the borrower of the loaned securities fails to return the
securities in a timely manner or at all. The Fund could also lose money in the event of a decline in the value of collateral provided for loaned securities or a decline in the value of any investments made
with cash collateral.
It is possible to lose money on an investment in the Fund. An
investment in the Fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation, any other government agency, or The
Northern Trust Company, its affiliates, subsidiaries or any other bank.
Fund Performance
The bar chart and table that follow show how the Fund has performed on a calendar year basis and provide an indication of the risks of investing in the Fund
by showing (A) changes in the Fund’s performance from year to year, (B) how the
Fund’s average annual returns compare with those of a broad measure of market performance, and (C) an additional index with characteristics relevant to the Fund. Past performance (before and after
taxes) does not necessarily indicate how the Fund will perform in the future. Updated
information on the Fund’s performance results can be obtained by visiting flexshares.com.
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FlexShares® US Quality
Large Cap Index Fund
Page 5
Calendar Year Total Returns
For the periods in the bar chart above:
Best Quarter (6/30/2020): 20.80%
Worst Quarter (3/31/2020): -21.73%
Average Annual Total Returns
(for the periods ended December 31, 2023)
| |
One Year |
Five Year |
Since Inception of Fund |
Inception Date of Fund |
| Before Taxes |
25.86% |
13.54% |
11.26% |
9/23/2015 |
| After Taxes on
Distributions |
25.45% |
13.13% |
10.83% |
— |
| After Taxes on
Distributions and Sale of
Shares |
15.56% |
10.78% |
9.12% |
— |
| S&P 500 Index* |
26.29% |
15.71% |
13.58% |
— |
| Northern Trust Quality
Large Cap IndexSM* |
26.30% |
13.90% |
11.59% |
— |
*
Reflects no deduction for fees, expenses or taxes.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes.
Actual after-tax returns depend on an investor’s tax situation and may differ
from those shown. After-tax returns shown are not relevant to investors who hold shares through tax-advantaged arrangements, such as 401(k) plans or individual retirement plans. After-tax returns may exceed the
return before taxes due to an assumed tax benefit from realizing a capital loss on a
sale of Fund shares.
Management
Investment Adviser and Portfolio Managers. NTI, a subsidiary of Northern Trust Corporation, serves as the Investment Adviser of the Fund. Robert Anstine, a Senior Vice President of NTI, and Brendan Sullivan and Yair
Walny, each a Vice President of NTI, have served as Portfolio Managers of the Fund
since its inception in September 2015, June 2016 and March 2024, respectively.
Purchase and
Sale of Fund Shares
The Fund is an exchange-traded fund
(commonly referred to as an “ETF”). The Fund’s shares may be issued and
redeemed only by certain large institutions, referred to as “Authorized
Participants,” that enter into agreements with the Fund’s principal underwriter. Retail investors may acquire and sell Fund shares in the secondary market through a broker-dealer. The price of Fund
shares is based on market price, and because ETF shares trade at market prices rather
than NAV, shares may trade at a price greater than NAV (a premium) or less than NAV (a discount). An investor may incur costs attributable to the difference between the highest price a buyer is willing
to pay to purchase shares of the Fund (bid) and the lowest price a seller is willing to
accept for shares of the Fund (ask) when buying or selling shares in the secondary market (“the bid-ask spread”). Recent information, including information about the Fund’s NAV, market price,
premiums and discounts, and bid-ask spreads, is included on the Fund’s website at
flexshares.com.
Tax Information
The Fund’s distributions are generally taxable to you as ordinary income, qualified dividends,
capital gains, or a combination of the three, unless you are investing through a
tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account. Distributions may be taxable upon withdrawal from tax-advantaged accounts.
Payments to Brokers-Dealers and Other Financial Intermediaries
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), NTI and its related companies may pay the intermediary for
activities related to the marketing and promotion of the Fund. These payments may
create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial
intermediary’s website for more information.
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