Van Eck Russia ETF to be self-indexed by late winter, adding one more fund to a growing trend.
Van Eck Global, the money management firm known for its natural resources investing strategies, filed regulatory paperwork to shift the index on its $1.61 billion Market Vectors Russia ETF (NYSEArca: RSX) to a benchmark created by its own Germany-based indexing subsidiary. The change will take effect in mid-March, the New York-based company said in a press release.
The fund currently is based on the DAXglobal Russia+ Index, but Van Eck plans to reorganize the ETF around the Market Vectors Russia Index, according to a filing the company made with the Securities and Exchange Commission on Jan. 6. Although the existing index has 50 constituents, Van Eck said its new Market Vectors Russia Index has 45 components and a market capitalization of $650 billion.
The index will be published by Frankfurt-based Market Vectors Index Solutions GmbH, and Van Eck went to great lengths in its filing to make clear that there was a firewall between its indexing unit and its Market Vectors Russia ETF.
“The Index Provider does not sponsor, endorse, or promote the Fund and bears no liability with respect to the Fund or any security,” Van Eck said in verbiage that appears to be intended to address the SEC’s concerns about the potential for conflicts with self-indexing strategies.
Filing for permission to self-index involves extensive regulatory reviews by the SEC. But that hasn’t stopped self-indexing from becoming a trend in the ETF industry, as the practice is a way to cut costs.
In recent years, amounts paid to indexers have shot up because indexing licensing fees have often been structured as a percent of the size of a given fund, and many funds have grown well beyond their modest sizes when indexing agreements were first drawn up.
WisdomTree Investments was the first ETF firm to do self-indexing, and IndexIQ was another early entrant into the business. More recently BlackRock, the parent of the world’s biggest ETF firm, iShares, and Guggenheim Partners both filed paperwork to gain the right to draft their own indexes.
Van Eck took the self-indexing leap with the acquisition of Market Vectors Index Solutions GmbH, the company that will publish the Market Vectors Russia Index. Prior to the acquisition, the indexing firm was playing a peripheral role in creating indexes for Market Vectors ETFs, a Van Eck spokesman has told IndexUniverse.
Van Eck noted that the new Russia index is calculated and maintained by Frankfurt-based Structured Solutions AG. The index will be calculated by means of a float-adjusted capitalization-weighting methodology in order to ensure compliance with the diversification requirement of “Subchapter M” of the Internal Revenue Code.
The share weights of the components also are adjusted on a quarterly basis. Rebalancing data, including constituent weights and related information, will be posted on the index provider’s website prior to the start of trading on the first business day following the third Friday of the calendar quarter.
The company also said a press announcement identifying additions and deletions to the index will be issued on the second Friday of any month in which a quarter ends.
Share weights of the constituents remain constant between quarters except in the event of certain types of corporate actions, including stock splits and reverse stock splits, the filing said.