Russell, one of the giants of the indexing world and a relative newcomer to the role of ETF issuer, continued to build out its young product lineup with the launch of four more investment discipline products. Each of the new funds delivers access to a subset of the Russell 2500 Index, a widely followed benchmark of small and mid cap U.S. stocks, using various investment disciplines:
- Small Cap Aggressive Growth ETF (SGGG): This ETF is designed to replicate the performance that is similar to investment managers using an aggressive growth discipline; components generally maintain average to high consensus forecasted earnings and one year historical sales growth [see SGGG fact sheet].
- Small Cap Consistent Growth ETF (SCOG): This ETF is designed to follow a consistent growth discipline; component stocks are those with average to high consensus forecasted earnings and consistent earnings as measured by average to low earnings per share volatility over the last five years [see SCOG fact sheet].
- Small Cap Low P/E ETF (SCLP): This ETF offers low maintenance exposure to a strategy that has been popular for decades: focusing on stocks with low price-to-earnings multiples. In order to be included in the underlying index, stocks must meet at least three of the following criteria: price to one year forecasted earnings, price to trailing earnings or price to cash flow below their five year historical average and/or price to book or price to sales below their industry average [see SCLP fact sheet].
- Small Cap Contrarian ETF (SCTR): This ETF is designed to mimic results available to a money manager implementing a contrarian strategy. The underlying index includes stocks with low historical price-to-sales multiples and low cash flow multiples and excludes any stocks that have significantly outperformed the market over the last one to three years. In other words, SCTR is designed to focus on companies that maintain strong fundamentals but that have struggled from a performance perspective relative to the broad market [see SCTR fact sheet].
Each of the new Russell ETFs is the small cap counterpart to an existing product that segments the universe of large cap stocks using similar disciplines: aggressive growth (AGRG), consistent growth (CONG), low P/E (LWPE), and contrarian (CNTR).
Investment Discipline ETFs
The ETF boom of the past several years has had the effect of democratizing various asset classes, such as commodities and volatility, to investors who previously had limited or no access. But the rise of the ETF industry has also made it possible for investors to achieve cheap, low maintenance exposure to strategies that previously required the assistance of a professional money manager or extensive research and analysis [see all the Russell ETFs here].
Russell’s lineup of ETFs, which also includes factor-based products targeting stocks with high volatility or momentum (among others), has grown quickly in part because of the appeal in the marriage of these investment strategies with the exchange-traded wrapper. “The new Small Cap Investment Discipline ETFs offer multiple benefits to investors looking for small cap equity exposure,” said David Koenig, Investment Strategist at Russell Investments. “Not only can they be used as a standalone way to implement a specific investment discipline within a portfolio, they also represent potential complements for existing Russell 2000 Index exposures or small cap actively managed mutual funds.”
The Russell ETF lineup now includes 21 products with aggregate assets of more than $150 million. Each of the new small cap investment discipline ETFs charges an expense ratio of 0.45%. Exposure to small cap stocks is available for as little as 12 basis points through FOS.
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Disclosure: No positions at time of writing.
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