A Solutions-Oriented Fund Family
August 2, 2016
by Robert Huebscher
Northern Trust’s FlexShares® offer investor-centric ETFs specifically designed with real-world goals in mind. Each pursues a primary and sometimes also a secondary investment outcome to help meet a variety of investment needs such as capital appreciation, risk management, income generation and liquidity management.
As executive vice president and head of Northern Trust’s funds and managed accounts business, Shundrawn Thomas oversees the development, management and distribution of Northern Funds, Northern Institutional Funds, FlexShares Exchange Traded Funds and its proprietary managed account solutions. His executive responsibilities include developing strategy, executing operating plans, managing client and vendor relationships and inspiring and developing professionals. He serves on the seven-member executive leadership team of Northern Trust Asset Management.
I spoke with Shundrawn on July 22.
As the head of Northern Trust’s funds and managed-account business, what is your core mission?
Our core mission is to deliver value-added products, solutions and insights to long-term investors. It’s that simple.
One of the areas you oversee are the ETFs under the brand name FlexShares, which are developed through your proprietary “Indexing” process. Can you provide an overview of those products and the principles behind their construction?
With FlexShares, the first building block is the focus on what we call the core fundamental needs of long-term investors. First is capital appreciation; clients are looking to grow assets. Second is risk management; either you are managing portfolio risk, composite risk or specific risk. Third, clients are looking to generate income to meet liabilities or obligations. Finally they need liquidity for unanticipated needs or opportunities.
Our primary distinction is that we are focusing on those objectives as opposed to being more product-centric, trying to find where the next hot fund category is.
The second tenet of flexible indexing is that we prefer, whenever appropriate, to use an indexed- or rules-based approach. The indexes or index strategies we pursue are nontraditional or alternatively weighted indexes. This is true of every single one of our index-managed ETFs – of our 24 ETFs, 23 are index-managed strategies.
All of them started with the FlexShares intellectual property. We came up with the initial concept. After we work on and test a concept to see if there is persistence, we then go about the process of determining whom best to partner with from an index standpoint. The flexible indexing process spans the entire range of stages, from coming up with the concept through managing the fund.
What differentiates your funds from those of other ETF providers who offer smart-beta products?
There are four things, two of which I have alluded to. First is the investor-centric approach that focuses on the fundamental objectives I mentioned in response to your previous question. It differentiates us because investment management firms generally pursue product centric approaches, as opposed to focusing on what the advisor needs to deliver for the client. The client has real-world goals that the advisor is seeking to meet. Many firms are just saying, “How can I find the product opportunity that sells well?”
Second is the intellectual capital that we bring. Being that Northern Trust is the fourth largest index provider with over two decades of experience in areas like quantitative-research or factor-based investing, we are able to start with the genesis of an idea. Unlike a lot of ETFs, where someone is taking an index off-the-shelf, we are starting with an investment objective that we want to deliver.
That ties to the last two. The third of which is the empirical analysis that supports every part of the process, everything from considering ideas to looking at demographic trends to the hard disciplined work that we do on the investment strategy itself.
Last is our collaborative development process. We are not starting with an off-the-shelf index. We are collaborating with an index provider, working toward an investment solution for clients. That distinguishes us because we are involved along every step of the way.
You make it a point to say that Northern Trust is more collaborative in sharing insights regarding product development and practice management with advisors. How so? And why is this important to advisors?
The reason being more collaborative is relevant is because we approach it as an iterative process, where we do a couple of things. One is we are not just going out and selling products. Part of our value proposition is offering insights and other value-add. The things that we do include hosting targeted forums for RIAs where we will not only focus on things like portfolio construction or product ideas, but also practice management issues like how they retain and recruit a strong advisor force or how they deal with budding trends like digital investment advisory.
That collaborative approach says we care and are thoughtful about your entire business. It does two things: It opens up a deeper and a broader level of engagement with advisors and their clients, and it provides us insights into everything we do, including what kind of products clients need and how we can make them better, or how we can work with advisors to serve them better.
While I’m focused on the advisors that we work with, that extends to all parts of our ecosystem. We are able to do that well when we work with the exchanges, market makers and custodians. By taking that knowledge — whether it is in capital markets, investment acumen or in sales and distribution — and bringing together those stakeholders, we give us ourselves a better innovation and development process.
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