Russell Plans Active Fund-Of-Fund ETFs

May 10, 2011


Russell Investments continued its push to enter the ETF market as the first major index provider to do so by filing paperwork with the Securities and Exchange Commission to market three actively managed fund-of-funds ETFs that make use of the exemptive relief the company obtained through its acquisition of U.S. One.

Russell’s acquisition of U.S. One, which closed in February, was widely seen in the ETF industry as Russell’s way to fast-track its ETF ambitions. Since the transaction closed, the company has filed to market several ETFs, most of them linked to Russell indexes. In the latest filing, dated May 9, the company laid out plans for funds that would use a broad array of U.S.-listed index ETFs.

The Russell Global Opportunity ETF (NYSEArca: ONEO), the Russell Bond ETF (NYSEArca: ONEB) and the Russell Real Return ETF (NYSEArca: ONER) are broadly diversified funds-of-funds, two of them consisting of underlying ETFs that tap into everything from equity, fixed income, real estate, commodities, infrastructure and currency markets—both domestically and globally. The third ETF it has in registration is a fixed-income strategy.

In choosing which index ETFs to use for its active overlay, Russell said it will consider how representative a given ETF is of its respective sector or asset class and also be mindful of any index ETF’s tracking error, which detracts from returns. Indeed, Russell said it’s particularly attentive to the price tag of the underlying ETFs in an effort to keep the prices of the proposed funds competitive, the filing said.

ONEO is a long-term capital growth fund that will have at least 30 percent of its portfolio allocated to non-U.S. securities through underlying ETFs, the filing said.

ONER “seeks a total return that exceeds the rate of inflation over an economic cycle,” with the company defining an economic cycle in the filing as a period between two cycle peaks or troughs.

Russell’s fixed-income fund, ONEB, seeks total return, and invests in both U.S. and foreign fixed-income securities through a basket comprising bond ETFs.

It didn’t disclose fees for the funds, which might also include ETNs and other ETPs in their strategies. Russell Investment Management Company is the funds’ advisor.



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