FlexShares iBoxx 3-Year Target Duration TIPS Index Fund (TDTT)
AI Summary
The fund tracks an index of U.S. Treasury Inflation-Protected Securities (TIPS) with a targeted average duration of around 3 years. TIPS are government bonds whose principal and interest payments adjust with inflation, as measured by the Consumer Price Index. The index includes TIPS with remaining maturities between 1 and 10 years, weighted to achieve the desired 3-year duration target. The index rebalances monthly.
The fund uses a passive, indexing approach to replicate the index holdings. It normally invests at least 80% of assets in the index components. The fund can use representative sampling rather than fully replicating when necessary. Up to 20% of assets can be held in other securities like cash, futures, and non-index holdings to help track the index.
A key feature is the fund’s focus on short-term TIPS to target a specific duration exposure. This provides inflation protection while limiting interest rate risk compared to longer-term TIPS funds. The concentration in U.S. TIPS also results in the fund being concentrated in the U.S. government securities industry.
Strategy Narrative (Prospectus)
The Underlying Index is designed to reflect the performance of a selection of inflation protected public obligations of the U.S. Treasury, commonly known as TIPS, with a targeted average modified adjusted duration, as defined by S&P Dow Jones Indices LLC as the Index Provider (Index Provider or SPDJI), of approximately three years. The Underlying Index includes publicly issued TIPS that have maturity dates of at least one year but not more than ten years from an index rebalancing date. TIPS are securities issued by the U.S. Treasury that are designed to provide inflation protection to investors. TIPS principal and interest payments are linked to an official inflation measure (as measured by the Consumer Price Index for All Urban Consumers, or CPI-U) and the payments are supported by the full faith and credit of the United States. As of December 31, 2023, there were 27 TIPS in the Underlying Index. The components of the Underlying Index are weighted by the Index Provider to achieve the targeted average modified adjusted duration and its composition is rebalanced monthly. The Fund generally rebalances its portfolio in accordance with the Underlying Index. NTI uses a passive or indexing approach to try to achieve the Funds 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 generally intends to replicate the constituent securities of the Funds Underlying Index. Replication is an indexing strategy in which a fund invests in substantially all of the securities in its underlying index in approximately the same proportions as in the underlying index. NTI may use a representative sampling strategy in certain circumstances, such as when it may not be possible or practicable to fully implement a replication strategy. Representative sampling is investing in a representative sample of securities that collectively has an investment profile similar to the Underlying Index. When the Fund uses representative sampling, it may or may not hold all of the securities that are included in the Underlying Index. 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. 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 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 sponsored by the Index Provider, an organization that is independent of the Fund and NTI. 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 Funds 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. For purposes of this limitation, securities of the U.S. government (including its agencies and instrumentalities) are not considered to be issued by members of any industry.