Russell, at long last, becomes a sponsor of its very own ETFs.
Russell Investments, the Seattle-based money management and indexing firm, launched six exchange-traded funds, its first after a protracted regulatory process that has left it a latecomer to the now-crowded field of ETF sponsors.
That’s not to say Russell isn’t at the center of the ETF business via its large indexing business. The firm said in a press release today that $84 billion in assets are benchmarked to its various indexes. Moreover, it sponsors two Australia-listed ETFs and made a U.S.-listed fund its own when it acquired Reno, Nev.-based One Fund in February. Financial advisors and ETF industry sources appear to be open to what Russell is serving up, and say whether Russell is successful will say droves about how crowded the ETF industry has become since the first U.S.-listed ETF came to market in 1993.
The new funds, which it called the “Russell Investment Discipline ETFs,” are based on what the firm called the most prevalent strategies professional investment managers use when selecting individual securities. They are all priced at 0.37 percent and are called:
- Russell Aggressive Growth ETF (NYSEArca: AGRG)
- Russell Consistent Growth ETF (NYSEArca: CONG)
- Russell Growth at a Reasonable Price ETF (NYSEArca: GRPC)
- Russell Equity Income ETF (NYSEArca: EQIN)
- Russell Low P/E ETF (NYSEArca: LWP)
- Russell Contrarian ETF (NYSEArca: CNTR)
"We’re very excited about our position of having exemptive relief for both active and passive ETFs, Andy Arenberg, managing director of distribution for Russell's global ETF business, said in a telephone interview. "We can do it all, but we want to do what we consider exciting, innovative, next-generation products, and we think the six we’ve launched provide a new set of exposures that haven’t existed in the market before," Arenberg added. The indexes behind each fund use different weighting techniques, including market capitalization, to reflect manager behaviors typical of each specific investment discipline, Russell said this week in a statement.
Russell had been trying to obtain permission from the Securities and Exchange Commission to market its own line of both active and passive ETFs for around two years. The process usually takes anywhere from six to nine months, though sources at Russell disputed the notion that its so-called exemptive relief petititions at the SEC were somehow being held up. Industry sources have said the delays for Russell were related to the SEC not being comfortable granting exemptive relief to a firm that already has such a large presence in the world of indexing.
Indeed, the six new ETFs all make use of a new family of indexes Russell launched in the past week. That said, other ETF firms use their own indexes on their proprietary ETFs—notably Van Eck Global with its Market Vectors ETFs, as well as WisdomTree—but the sources said the sheer size of Russell gave the Commission pause.
“The launch of Russell ETFs represents another major step forward in Russell’s storied history of research and innovation,” Andrew Doman, president and CEO of Russell, said in the press release.
Each Russell Investment Discipline ETF tracks the performance of a corresponding Russell Investment Discipline Index, which is independently screened and constructed in order to reflect the return patterns of a particular investment strategy, according to the press release. The Russell Investment Discipline indexes are constructed from companies in the Russell 1000 Index, which Russell called the most widely used U.S. large-cap index among institutional investors.
Preparing for this day, Russell assembled a seasoned team of ETF veterans from across the industry to help decisively build on Russell’s leadership position in the institutional investment space. Among those executives was Greg Friedman, formerly a high-ranking executive at iShares when that firm was headed by Lee Kranefuss.
Today’s announcement follows the acquisition of U.S. One, Inc. earlier this year. Following the acquisition, Russell became the investment advisor for the One Fund (NYSEArca: ONEF) an ETF of ETFs that launched May 14, 2010. After the transaction closed, the ONEF was subsequently renamed the Russell Equity ETF. Russell also previously launched the Russell High Dividend Australia Shares ETF and Russell Australian Value ETF.
In recent regulatory paperwork, Russell also detailed two other ETFs that appear to be near launch as well. Those and their expense ratios are:
- Russell Small & Mid Cap Defensive Value ETF (NYSEArca: SMDV), 0.45 percent
- Russell Small Cap Defensive Value ETF (NYSEArca: SCEQ), 0.49 percent
Apart from existing ETF assets indexed to Russell benchmarks, the company also runs a mutual fund complex with total assets under management of $161 billion.
"At the end of the day, investors wants choice, and they’re going to make decisions both in terms of their risk budget and their cost budget. So, with the launch of these six products, we’re expanding the number of choices Russell provides to investors," Arenberg said, responding to a question of how Russell reconciles its family of actively managed mutual funds and active ETFs with its first passively managed ETFs.
Watching Russell’s Foray
William Koehler, chairman and chief investment officer of ETF Portfolio Partners Inc., a Leawood, Kansas-based registered investment advisor, said he isn’t surprised by the arrival of Russell, and plans to take a closer look at what Russell is serving up.
“Russell’s a good name and they’ve been a good name for many years,” Koehler said in a telephone interview. “I welcome them getting into the ETF business and seeing what they can do. If they offer something that adds value, more power to them,” Koehler added.
“What it means to me is that it’s all part of the ETF tsunami. They see where things are going, and they want a piece of the action. I say the more the merrier, let them compete in the marketplace, and it should be good for investors.”
However it plays out, Russell’s foray into the world of ETFs is likely to be closely watched.
“If they cannot attract assets, it will signal to others that the ETF space is full,” Richard Keary, President of Global ETF Advisors LLC, a New York-based consultancy that helps companies bring ETFs to market, said in comments e-mailed to IndexUniverse. “Of course, if they are successful, we will see other new players pick their spots and enter the business.”
Distribution is the key to successful launches now; it used to be product-specific competition and first-mover advantage, Keary added. “Now, it seems that the competition is about distribution and expense ratios. It will be interesting to see how Russell handles this and if their ETFs at 37 basis points are priced right.”
Russell’s ETF business in largely based in San Francisco.