Another day, another major investment company entering the ETF industry. Russell Investments, known as a pioneer of multi-manager investing and the creator of some of the most widely-tracked indexes in the world, has filed with the SEC for exemptions that would allow it to launch its own line of ETFs. In its 40-APP filing, which is one of the first steps in launching an exchange-traded fund, Russell requests permission for both actively-managed ETFs and index-based funds. The filing also notes that the proposed funds could “invest in equity securities or fixed income securities traded in the U.S. or non-U.S. markets,” providing little insight into the types of funds that Russell hopes to lead with.
Russell is certainly no stranger to the ETF industry, as its indexes serve as the benchmarks for many of the most popular exchange-traded products. While a potential launch is still months away and will likely be done on a relatively small scale, Russell’s entry could have a major impact on the industry. As Heather Bell at Index Universe pointed out, given Russell’s role in institutional management, they could help make a push for wider inclusion of ETFs in 401(k)s, an area that still remains largely untapped.
Russell, which had assets under management of more than $136 billion as of March 31, 2009, is the latest in a long line of traditional asset management powerhouses to jump into the ETF arena. To date, Vanguard and Barclays have been among the most successful, identifying the potential for ETFs early in the game and establishing themselves as industry leaders. Those who didn’t invest heavily in their ETF business from the onset have used one of two strategies to make a splash in the space: acquiring existing ETF product lines, or attempting to grow one from scratch.
Coming In With A Bang
BlackRock’s recent acquisition of BGI, which includes the market-leading iShares line of ETFs, is the biggest and best-known example of traditionally active management firms making a grand entrance into the ETF space, but it isn’t the only one. In early 2006, AMVESCAP PLC acquired PowerShares Capital Management, which at the time had a line of 36 ETFs with about $3.5 billion in assets, for a purchase price of $60 million. AMVESCAP changed its name to Invesco in May 2007, and the company has since expanded the Invesco PowerShares portfolio to include over 100 products with nearly $33 billion in AUM.
Although the PowerShares acquisition was hugely successful for Invesco (its assets have grown nearly tenfold in only a few years), other asset management firms have been hesitant to pull the trigger on blockbuster deals, preferring instead to attempt to grow their ETF product lines from the ground up. Charles Schwab, Fidelity, PIMCO, Old Mutual, UBS, Merrill Lynch, and Bear Stearns are among the financial behemoths that have waded in more slowly, launching a a few ETFs at a time, each with varying degrees of success. Now we can add Fidelity to the list.
Disclosure: No positions at time of writing.