Russell-Axioma Indexes Take On Systemic Risk

November 10, 2010

Russell Investments, one of the world’s leading index providers, along with risk analysis firm Axioma, launched four new factor-based indexes that take on the issue of systemic risk.

Russell and Axioma first partnered up in December 2009 to create the Russell-Axioma Momentum Index. Now, the companies have added four new benchmarks to their original fare that target risk factors in portfolio construction, aiming to give investors a complete suite of tools to manage their exposure to various risk factors while tracking specific factors’ returns.

Investors are increasingly concerned with systemic risk, and the new indexes take into account risk factors such as size, liquidity and leverage when determining the weighting of individual securities in a given portfolio.

“We have responded to investor demand by providing them with the ability to measure a portfolio’s relative under or overweight against certain factors isolated by the Russell-Axioma Factor Indexes,” Ron Bundy, the head of Russell Indexes, said in a press release.

The five benchmarks, which come as “market neutral long-short across all market capitalization tiers” combine the investable universe of the Russell 1000, Russell 2000 and Russell 3000 indexes with Axioma’s expertise on risk analysis and factor risk management.

The indexes, which are designed to be replicated, don’t only limit exposure to systemic risk factors, but also control tracking error and turnover, among other things, the company said.

The portfolio construction involves buying 35 percent of the base index with the highest factor scores in a cap-weighted methodology and selling the base 35 percent of the names with the lowest scores, according to information on Russell’s Web site.

The indexes are:

  • Russell-Axioma Momentum Index
  • Russell-Axioma Beta Index
  • Russell-Axioma Leverage Index
  • Russell-Axioma Liquidity Index
  • Russell-Axioma Volatility Index

 

The indexes are expected to serve as benchmarks to a roster of Russell large-cap ETFs currently undergoing registration with the Securities and Exchange Commission, a company representative told IndexUniverse.com.

 

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