The final exchange-traded fund run by Russell Investments, an active strategy with less than $8 million in assets, will shut by early next year, so ending Russell’s foray into ETFs—easily one of the more noteworthy flameouts in the nearly 22-year history of the ETF industry.
The fund will be closed to new investment on Jan. 26, 2015, suspended from trading by NYSE Arca on Jan. 27, and completely liquidated by Feb. 6, the Seattle-based company said in press release last week. The company said in the statement that the strategy, a fund-of-funds equities ETF, has not generated much interest.
The Russell Equity ETF (ONEF | C-58) was also Russell’s very first ETF, though not of the firm’s own making. ONEF was acquired from a Reno, Nevada-based firm by the name of U.S. One, which launched the fund in 2010. Russell acquired U.S. One early in 2011, and began launching a broad lineup of “smart beta” ETFs based on its own in-house indexes in the spring of 2011.
Russell was all-in with “smart beta” strategies, confident it would find success in next-generation index strategies, flooding the zone with a total of 25 smart-beta ETFs. But nurturing so many fledgling funds at the same time proved to be a bridge too far, and in August 2012, the firm shuttered every last one of its ETFs, save for ONEF, the very fund that is now getting the ax.
The closing of the 25 funds was, as noted, one of the more astonishing turns of events in an industry marked by accelerating growth—and particularly in the realm of “smart beta” strategies. These days, inflows into “smart beta” strategies are twice as powerful as those into ETFs in general—a sure sign that Russell was on to something.
Indeed, the Russell story appears to have been one of brilliant strategic insight, marred by flawed tactical decision-making. It’s not that investors weren’t interested in “smart beta” ETFs; indeed, funds like the PowerShares S&P 500 Low Volatility Portfolio (SPLV | A-47), which, like the first Russell funds, launched in May 2011, were popular from the first. SPLV was a blockbuster from the start, and now has almost $5 billion in assets.
Even Russell’s own Russell 1000 Low Volatility ETF (LVOL) managed to collect almost $70 million, a modest but not paltry amount after about a year. Interestingly, a reincarnated version of the fund, the SPDR Russell 1000 Low Volatility ETF (LGLV | B-65) that’s based on the same Russell-designed index as the ill-fated “LVOL,” now has less than $16 million in assets, according to data compiled by ETF.com.
At the time, Russell said that investors weren’t quite ready for what the firm was serving up: “Regarding the closures, while the innovation behind Russell's next-generation ETF products received substantial interest in general, the market for them is still in its early days,” the company said in a press issued in the summer of 2012.