Summary Prospectus
FlexShares® International Quality Dividend
Index Fund| March 1, 2024 |
Ticker: IQDF |
Stock Exchange: NYSE Arca, 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 International
Quality Dividend 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 |
0.47% |
| Distribution (12b-1) Fees |
0.00% |
| Other Expenses |
0.02% |
| Total Annual Fund Operating Expenses |
0.49% |
| Expense Reimbursement(1) |
-0.02% |
| Total Annual Fund Operating Expenses After Expense
Reimbursement |
0.47% |
(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 0.47%. 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 |
$48 |
| 3 Years |
$155 |
| 5 Years |
$272 |
| 10 Years |
$614 |
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 49% 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, provide exposure to a high-quality income-oriented universe of long-only
international securities issued by non-U.S.- based companies, with an emphasis on long-term capital growth and a targeted overall beta that is similar to that of the Northern Trust International Large
Cap Index (the “Parent Index”), a float-adjusted market-capitalization
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FlexShares® International
Quality Dividend Index Fund
Page 2
weighted index of non-US domiciled large- and mid-capitalization companies. Beta represents the market sensitivity, relative to a given market index and time
period, and is one measure of volatility.
To derive the Underlying Index, NTI, acting in its capacity as the index provider (the “Index
Provider”), begins with all securities in the Parent Index that have an average daily traded value of at least $125,000 in the 90 days prior to a reconstitution, and then removes those
securities that rank in the lowest quintile of quality based on a proprietary scoring
model, as well as those which do not pay a dividend. The core components of the proprietary quality scoring model are based on quantitative ranking of various metrics obtained from company filings. These
scores have three components: (i) management efficiency (e.g., corporate finance
activities); (ii) profitability (e.g., reliability and sustainability of financial performance); and (iii) cash flow (e.g., cash flow generation). The Index Provider then uses an optimization process to select and
weight eligible securities in order to (a) maximize the overall quality score relative
to the Parent Index; (b) attain an aggregate dividend yield in excess of the Parent Index; and (c) achieve the desired beta target. The optimization process also includes sector, industry group, region, country,
single-security weight and turnover constraints to assist in reducing the Underlying
Index’s overall active risk exposure to any one single factor. As of December 31, 2023, there were 190 issues in the Underlying Index. The Underlying Index is reconstituted quarterly. The Fund generally
reconstitutes its portfolio in accordance with the Underlying
Index.
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” its Underlying Index 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.
Under normal circumstances, the Fund will invest at least 80% of its total assets (exclusive of
collateral held from securities lending) in the securities of the Underlying Index and
in American Depositary Receipts (“ADRs”) and Global
Depositary Receipts (“GDRs”) (collectively “Depositary Receipts”) based on
the securities in the 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, options on futures contracts and foreign currency contracts, 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).
From time to time the Fund may focus its investments (i.e., invest more than 15% of its total assets) in one or more particular countries or geographic regions. As of December 31, 2023, the Fund focused its
investments in Japan, Switzerland, China, the United Kingdom and Taiwan.
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.
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.
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FlexShares® International
Quality Dividend Index Fund
Page 3
Mid Cap Stock Risk is the risk that stocks of mid-sized companies may be subject to more abrupt or erratic market
movements than stocks of larger, more established companies, and may lack sufficient
market liquidity. Mid-sized companies may have limited product lines or financial
resources, and may be dependent upon a particular niche of the market, or may be
dependent upon a small or inexperienced management group. Securities of smaller
companies may trade less frequently and in lower volume than the securities of larger
companies, which could lead to higher transaction costs. Generally the smaller the
company size, the greater the risk.
Foreign Securities Risk is the risk that investing in foreign (non-U.S.) securities may result in the Fund experiencing more rapid and extreme changes in value
than a fund that invests exclusively in securities of U.S. companies, due to less
liquid markets and adverse economic, political, diplomatic, financial, and regulatory factors. Foreign governments may impose limitations on foreigners’ ownership of interests in local issuers, restrictions
on the ability to repatriate assets, and may also impose taxes. Any of these events
could cause the value of the Fund’s investments to
decline. Foreign banks, agents and securities depositories that hold the
Fund’s foreign assets may be subject to little or no regulatory oversight over, or independent evaluation, of their operations. Additional costs associated with investments in foreign securities may include
higher custodial fees than those applicable to domestic custodial arrangements and
transaction costs of foreign currency conversions. Unless the Fund has hedged its foreign currency exposure, foreign securities risk also involves the risk of negative foreign currency rate
fluctuations, which may cause the value of securities denominated in such foreign
currency (or other instruments through which the Fund has exposure to foreign
currencies) to decline in value. Currency exchange rates may fluctuate significantly over
short periods of time. Currency hedging strategies, if used, are not always
successful. For instance, forward foreign currency exchange contracts, if used by the Fund, could reduce performance if there are unanticipated changes in currency exchange rates.
Emerging Markets Risk is the risk that emerging markets are generally subject to greater market volatility, political,
social and economic instability, uncertain trading markets and more governmental
limitations on foreign investments than more developed markets. In addition, companies
operating in emerging markets may be subject to lower trading volumes and greater price
volatility than companies in more developed markets. Emerging market economies may be
based on only a few industries, may be highly
vulnerable to changes in local and global trade conditions, and may suffer from extreme and volatile
debt burdens or inflation rates. Companies in emerging market countries generally may
be subject to less stringent regulatory, disclosure, financial reporting, accounting, auditing and recordkeeping standards than companies in more developed countries. As a result, information,
including financial information, about such companies may be less available and
reliable, which can impede the Fund’s ability to evaluate such companies. Securities law and the enforcement of systems of taxation in many emerging market countries may change quickly and unpredictably, and
the ability to bring and enforce actions (including bankruptcy, confiscatory taxation,
expropriation, nationalization of a company’s assets, restrictions on foreign ownership of local companies, restrictions on withdrawing assets from the country, protectionist measures and practices
such as share blocking), or to obtain information needed to pursue or enforce such
actions, may be limited. Investments in emerging market securities may be subject to additional transaction costs, delays in settlement procedures, unexpected market closures, and lack of timely
information.
Geographic Risk is the risk that if the Fund invests a significant portion of its total assets in certain issuers
within the same country or geographic region, an adverse economic, business or
political development affecting that country or region may affect the value of the Fund’s investments more, and the Fund’s investments may be more volatile, than if the Fund’s investments
were not so concentrated in such country or region.
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.
Dividend
Risk is the risk that an issuer of stock held by the Fund may choose not to declare a
dividend or the dividend rate might not remain at current levels. Dividend paying
stocks might not experience the same level of earnings growth or capital appreciation
as non-dividend paying stocks. The Fund’s performance during a broad market
advance could suffer because dividend paying stocks may not experience the same capital
appreciation as non-dividend paying stocks.
Volatility Risk is the risk that the actual level of volatility experienced by the Fund may be greater or lower
than the targeted overall volatility of the Underlying Index.
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FlexShares® International
Quality Dividend Index Fund
Page 4
Although the Underlying Index is designed to have a targeted overall volatility that is similar to that of the Parent Index, there is no guarantee that it will
have the targeted overall volatility. The Fund will continue to seek to track the
Underlying Index even if the Underlying Index does not have the targeted overall volatility. There is also the risk that the Fund may experience volatility greater or lower than that of the Underlying Index as a
result of tracking error. A portfolio of securities with greater volatility is
generally considered to have a higher risk profile than a portfolio with lower
volatility.
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.
Depositary Receipts Risk Foreign securities may trade in the form of depositary receipts. In addition to investment risks associated with the underlying issuer, depositary receipts may expose the Fund to additional
risks associated with non-uniform terms that apply to depositary receipt programs,
including credit exposure to the depository bank and to the sponsors and other parties with whom the depository bank establishes the programs, currency, political, economic, market risks and the risks
of an illiquid market for depositary receipts. Depositary receipts are generally
subject to the same risks as the foreign securities that they evidence or into which
they may be converted. Depositary receipts may not track the price of the underlying foreign securities on which they are based, may have limited voting rights, and may have a distribution
subject to a fee charged by the depository. As a result, equity shares of the
underlying issuer may trade at a discount or premium to the market price of the
depositary receipts.
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 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.
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
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FlexShares® International
Quality Dividend Index Fund
Page 5
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 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. This risk may be
heightened because of its investments in non-U.S. securities.
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.
•Forward Foreign Currency Contracts
Risk is the risk that, if forward prices increase, a loss will occur to the extent that the agreed upon purchase price of the currency exceeds the price of the currency that
was agreed to be sold.
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.
Valuation Risk is the risk that the sale price the Fund could receive for a portfolio security may differ from the Fund’s valuation of the security,
particularly for securities that trade in low volume or volatile markets or that are valued using a fair value methodology. In addition, the value of the securities in the Fund’s
portfolio may change on days when shareholders will not be able to purchase or sell the
Fund’s shares.
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
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FlexShares® International
Quality Dividend Index Fund
Page 6
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.
Calendar Year Total Returns
For the period shown in the bar chart above:
Best Quarter (12/31/2020): 18.20%
Worst Quarter (3/31/2020): -26.07%
Average Annual Total Returns
(for the periods ended December 31, 2023)
| |
One Year |
Five Year |
Ten Year |
| Before Taxes |
19.61% |
7.11% |
3.11% |
| After Taxes on Distributions |
17.72% |
5.85% |
2.02% |
| After Taxes on Distributions and Sale of
Shares |
12.58% |
5.40% |
2.28% |
| MSCI ACWI ex USA Index* |
15.62% |
7.09% |
3.83% |
| Northern Trust International Quality
Dividend IndexSM* |
20.72% |
7.47% |
3.48% |
*
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 Alan
Aung, each a Vice President of NTI, have served as Portfolio Managers of the Fund since
October 2013, 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
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