Russell Adds 3 Int’l Factor-Based ETFs
November 03, 2011
Russell Investments, the money management firm that rolled out its first ETFs in May, today added three non-U.S. international “factor-based” ETFs to its lineup of "smart beta' funds. The new funds, like their U.S.-focused counterparts, use indexes that single out stocks with low beta, low volatility and high momentum.
The three funds, which all have net annual net expense ratios of 0.25 percent, are:
The three international funds, which Russell originally registered in July, are “intelligent beta” products that go beyond the plain-vanilla market-capitalization-weighted funds that make up most of the $1.1 trillion in U.S.-listed exchange-traded products. Such smart beta products cherry-pick securities with certain characteristics with a view to managing risk the way an active manager might, only with rules-based indexes instead.
Each newly launched factor ETF is constructed with an index Russell developed with Axioma, a company that provides risk metrics software for financial services firm. Each index draws from the Russell Developed ex-U.S. Large Cap Index.
“Frankly it is something that only Russell can do,” Greg Friedman, managing director of Russell’s global ETF product group, said in a telephone interview, referring to the factor-based indexes. “We are the only ones they partner with to give superiority around factor investing.”
Russell has been steadily moving in recent months to expand its offerings of intelligent beta products, such as its factor-based funds and another family of “investment discipline ETFs. Friedman told IndexUniverse in a recent interview that Russell is staking much of its future in the ETF industry on such funds as well as transparent actively managed strategies. It launched 10 similar factor-based U.S.-focused funds in late May.
With its three new international funds, the company is closer to offering a comprehensive global family of factor-based ETFs, that provide exposure to low volatility, low beta and high momentum factors within a portfolio that covers U.S. large cap, U.S. small cap and ex-U.S. large cap markets. Missing from today’s rollout were two Russell ETFs that are close to launch that target high beta and high volatility stocks.
Russell has said in regulatory paperwork that the ETFs will normally invest 80 percent of their total assets in common stocks that comprise their respective Russell indexes.
And as is common with U.S. ETFs that track foreign stocks, some of the assets in the Russell ETFs are likely to be in the form of depository receipts, which offer greater liquidity, but can also introduce larger tracking errors.
Russell has said the tracking error on the ETFs isn’t likely to be more than 5 percent.
Russell noted that the expense ratios on the funds reflect a waiving of 0.34 percent in management fees until July 29, 2014. New low volatility ETFs launched by companies such as iShares and PowerShares helped drive that decision, according to Friedman.
“We have had some competitors come out with some fantastic products,” he said, “and we wanted to take price off the table.”
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