FlexShares Emerging Markets Quality Low Volatility Index Fund (QLVE)
QLVE is an exchange-traded fund that picks profitable, steadier companies from growing economies across Asia, Latin America, Africa, and Eastern Europe — countries where the population and incomes are rising but the stock markets tend to be volatile.
Emerging markets are countries on their way up. China, India, Brazil, Mexico, and dozens of others have younger, faster-growing populations and rising middle classes. Investors hunting for long-term growth often venture into these markets. But emerging-market stock prices bounce around much more than stocks in established economies like the US or Germany. QLVE’s idea is simple: hold emerging-market companies, but pick the ones that are stable and profitable, and avoid the wild ones. That gives you growth-market exposure without as much of the stomach-turning swings.
What makes emerging markets different
Emerging markets sit at the intersection of opportunity and roughness. The businesses there are growing faster than Western companies, which is appealing. But the stock prices can move 20%, 30%, even 50% in a year — swings that would be exceptional in the US market. Why? The markets are less liquid (fewer traders, so big orders move prices more). The countries are often less stable politically (governments change, policies flip, regulations are unpredictable). And the stocks are held more by foreign speculators and less by permanent local shareholders, which can make them sensitive to global appetite for risk.
Investors know they might get higher returns from emerging markets over decades. The tradeoff is tolerating more volatility and more uncertainty. QLVE tries to reduce that second part without giving up the first.
How QLVE picks its stocks
QLVE uses screens similar to those in its developed-markets sibling QLVD, but applied to emerging markets. Northern Trust and Morningstar look for companies with:
- Strong returns on the money they invest (high return on equity)
- Manageable debt levels
- Steady earnings
- Lower historical price swings than the broader emerging-market average
From the universe of several thousand emerging-market stocks, QLVE narrows down to around 250-300 that meet those criteria. It then weights them not by market cap, but by their quality-low-volatility score — the “best” candidates get more weight.
The result is a portfolio that still has the geographic and sectoral flavour of emerging markets (heavy in banks, oil companies, and tech firms from China and India), but tilted toward the less wild versions. It still owns China, India, Brazil, and Mexico — the biggest emerging markets — but emphasizes the companies in those countries that are easier to understand and less prone to spectacular collapses.
The volatility question and what it really means
Volatility in a stock is just the day-to-day, month-to-month price bouncing. A stock that swings 2% most days is low volatility; one that swings 10% is high. It sounds abstract. But the reason QLVE screens for it is practical: companies with low historical volatility tend to be less speculative, more established, and less reliant on a single product or bet. A stable-earnings bank or telecom is inherently less volatile than a startup mining company or a biotech firm. When you screen for low volatility in emerging markets, you are filtering out speculation and picking steadier business models.
But here is the catch: that very steadiness means QLVE will lag in years when the market gets excited about emerging-market growth stories — new technologies, commodity booms, or a particular country becoming fashionable. In those years, the volatile, riskier companies that QLVE avoids will outperform. Conversely, when investors flee risk (as in a global financial crisis or recession), QLVE’s steadier holdings should hold up better.
Currency and geopolitical exposure
The biggest non-market risk in QLVE is currency. The fund holds stocks in dozens of currencies: the Chinese yuan, Indian rupee, Brazilian real, Mexican peso, and others. When the US dollar strengthens (becomes more valuable), these foreign currencies become weaker, and that loss flows through to US-based investors even if the local stock prices go up. QLVE does not hedge currency risk, so international money movements are a built-in source of returns (or losses) that depend on global currency markets, not just the quality of the companies owned.
Geopolitically, emerging markets carry structural risks that developed markets do not. A change in government, a debt crisis, or international sanctions can disrupt stock markets swiftly. China faces geopolitical tension with the West; India and Pakistan have historical tensions; Brazil and Mexico deal with political volatility. QLVE’s screening for stable, profitable companies provides some protection — those companies are more likely to survive political disruption — but it is not a shield. A country-wide crisis can still hit the fund.
How it compares to broader emerging-market funds
A simple emerging-markets index fund (like VWO or EEM) owns all major emerging-market stocks weighted by market cap. That means it holds more of the biggest companies and more exposure to the most speculative sectors and stocks. QLVE, by filtering for quality and low volatility, reduces that speculation and tilt the portfolio toward slower-growing but steadier businesses.
The tradeoff is that in bull markets for emerging-market growth stocks — think 2020 to early 2021, when tech and high-growth companies soared globally — QLVE will trail a broad emerging-markets fund. When growth expectations cool, QLVE’s defensive positioning tends to help.
Costs and mechanics
QLVE carries an expense ratio typically in the 0.40–0.50% range, a bit higher than QLVD, reflecting the greater complexity of emerging-market operations and the smaller universe of available stocks. Rebalancing happens quarterly, and the fund trades on the NASDAQ with reasonable liquidity.
Tracking error is typically under 0.3% annually, suggesting that Northern Trust is managing the fund efficiently relative to its benchmark.
For whom QLVE makes sense
QLVE appeals to investors who want long-term exposure to emerging-market growth but do not want the maximum volatility ride. It is used by advisory firms building globally diversified portfolios for clients who can tolerate some turbulence but prefer not to see their emerging-markets holding oscillate wildly. It is also suitable for individual savers accumulating shares over decades who believe emerging markets will grow but prefer to own the steadier players.
To research QLVE, read Northern Trust’s fact sheet and prospectus to understand the selection criteria. Study Morningstar’s index methodology. Compare historical returns against the broad emerging-markets index and against other quality-focused emerging-market funds. Watch the portfolio’s actual profitability and volatility metrics to ensure the fund is screening as advertised. And think carefully about currency risk: if the US dollar strengthens during your holding period, QLVE will lag its own index purely because of currency headwinds, even if the local companies do well.