With new launches, could global value & growth ETFs be on the way?
New indexes to slice and dice global stock markets are coming from Russell Investments, the Tacoma, Wash.-based firm said on Wednesday.
Russell says the Russell Global Large Cap Growth Index and Russell Global Large Cap Value Index will represent segments of the Russell Global Index.
The launch date for the new indexes is April 1.
"There are other index families which take each one of their countries and divide them into different styles," said Kelly Haughton, strategic director for Russell Indexes. "They add all of those up to form global value and global growth indexes."
The innovative part of what Russell is doing, he adds, is to take a global perspective on the definition of growth and value. Instead of breaking countries up market by market, it's taking a more macro view.
"A lot of the industry's thought process on style is that individual markets are made up of 50% value and 50% growth," Haughton said.
An example is Australia. Five years ago, most of the stocks in that market were considered as value names. "Today as a result of the boom in commodities, most of those stocks are seen as growth," Haughton said. "That's not surprising and it makes sense."
But when competing benchmarks take a micro view and constrain Australia to 50% value and 50% growth, "that misses the real story of what's happening in that market," said Haughton.
"In building our global indexes, we're taking a global perspective to construction and design," he added. "And since we just launched our first global index a little over a year ago, we aren't constrained by a log of legacy concerns."
But just as interesting, a new global index could be a signal that Russell's working on a deal to license the indexes for use in exchange-traded funds. Haughton refused to comment on that possibility.
Right now, the only way to get full global stock exposure is through a mishmash of different funds. For example, investors can pair two Vanguard funds. One would be the FTSE All-World ETF (VEU), which includes both developed and emerging markets outside the U.S. That would go along with its Total Stock Market ETF (AMEX: VTI) for domestic stock market coverage.
Also, some global ETFs focusing on mega-cap names are currently available. That includes the iShares S&P Global 100 (NYSE: IOO). Another is the recently released SPDR S&P International Dividend ETF (AMEX: DWX).
The Claymore U.S.-1 Capital Markets Index ETF (AMEX: UEM) also just hit domestic markets. It seeks to cover most investable stocks and bonds traded in America. A foreign counterpart could be coming soon, as well.
Perhaps the furthest along in terms of bringing total stock market exposure to all major global markets is an ETF in registration from Northern Trust. It's expected out in the next several months.
Several dividend-focused global funds already exist as well. But in terms of providing exposure on a worldwide basis to purely value and growth, the new Russell indexes could be the first sign of an opening in style-focused global investing opportunities in the U.S.
"As investors flock toward global mandates, they're looking to us for more robust and transparent tools that reflect distinct market segments similar to what they've come to use for the U.S. market," said Rolf Agather, director of business development for Russell Indexes.
Agather announced the new indexes at the Indexing & ETF Investments Asia 2008 conference in Singapore. He added in a statement that since the launch of Russell Global Indexes in early 2007, Russell "has extensively researched and considered how best to approach style index construction globally."
In looking at the institutional indexing and money management market, Agather says that "we've seen over time that they've increasingly taken on the challenge of moving from a domestic focus in their portfolios to a global one."
As a result, he sees "an increasing demand for better tools to improve analysis and understanding of global portfolios."
The new global style indexes follow in the footsteps of Russell's successful U.S. series. The firm estimates that its Russell 1000 Growth Index and the Russell 1000 Value Index now track more than $1 trillion in benchmarked assets.
Russell's indexes are designed to include float-adjusted market capitalization, annual reconstitution and multifactor style analysis.
Russell had more than $228 billion in assets under management at the end of 2007. Its consulting, money management, advisory and indexing services operate in 40 different countries. Russell's indexes as a whole have $4.4 trillion in assets benchmarked to them, according to the firm. Russell is a subsidiary of The Northwestern Mutual Life Insurance Company.