Russell To Close All But One Of Its ETFs

August 19, 2012

Russell throws in the towel on its index ETFs, but says it will focus on developing active strategies.


Russell, the investment company that began launching its own ETFs in May 2011 with a distilled focus on indexed smart-beta strategies, will close all but one of its funds because they haven't gathered the assets to justify their continued existence.

But the Seattle-based company, which will shut the funds in October, won’t abandon its ETF plans entirely. Instead it will narrow its focus on actively managed strategies. It made tangible that strategic shift by leaving open the actively managed Russell Equity ETF (NYSEArca: ONEF), according to a company press release.

The company made a splashy debut in the spring of last year with the rollouts of numerous smart-beta ETFs, such as the Russell 1000 Low Volatility ETF (NYSEArca: LVOL).

It said at the time the next logical step in the ETF revolution was enhanced beta strategies—such as Rob Arnott’s “fundamental indexing"—that have moved the world of index investing a bit closer to active management.

“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 the press release.

Indeed, while investors have bought smart-beta funds—most notably in the PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV), which is fast approaching $2.5 billion in assets. But Russell’s funds such as the $68 million LVOL never took off. Some industry sources have said the funds’ strategies were difficult to grasp.

“Given challenging equity market conditions since the launch of these products, Russell determined that proposing the liquidation of the passively managed ETFs at this time is in the best interests of the ETFs and their shareholders,” the company said. It noted all 25 funds had total assets of $310 million as of July 31.

“Russell will continue to focus on offering solutions in the actively managed, asset allocated ETF space as part of its core capability in investment strategy implementation, as well as in the passive ETF space through its index licensing business."

ONEF was Russell’s first ETF. It is an active fund-of-funds asset allocation strategy composed of index ETFs.

Russell remains the underlying index provider for many ETFs around the world, which have more than $80 billion in assets under management, and will continue its strong partnership with all of its ETF sponsor clients.


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