Russell Investments, the indexing company that now has its own line of exchange-traded funds in the works, will collaborate with Rob Arnott’s Research Affiliates LLC to create fundamentally weighted “alternative beta” indexes for use in ETFs, the two companies said in a June press release.
It’s the second such agreement for Newport Beach, Calif.-based Research Affiliates, which already has a partnership with FTSE that has resulted in the FTSE RAFI index family derived from FTSE’s “All Cap” benchmark indexes. The methodology for those indexes selects securities based on four fundamental factors: sales, cash flow, book value and dividends.
Many of the FTSE RAFI indexes have been licensed by Invesco PowerShares for the creation of ETFs, and Charles Schwab also offers a family of index mutual funds based on the indexes. The new agreement with Russell covers a family of indexes based on three fundamental factors instead of four, and none will overlap with the ones used in the construction of the FTSE/RAFI indexes, according to Arnott.
The first index to launch as a result of the Russell/Research Affiliates partnership will probably be a global index that’s likely to launch late in the third quarter.
While Russell emphasized in the press release that it continues to believe that market-capitalization weighting is the best way to measure the “investable opportunity set,” it is seeing demand from clients for the sort of indexing methodologies that Research Affiliates specializes in. |
