Russell Debuts Slew Of Factor ETFs

by on May 27, 2011 | ETFs Mentioned:

Russell broadened its ETF footprint considerably on Friday, rolling out a suite of ten factor ETFs offering exposure to large cap and small cap domestic equities. The aggressive expansion comes just over a week after Russell made its long awaited debut in the ETF industry with the launch of six funds offering exposure to investment discipline sub-sets of the Russell 1000 Index (the company had previously acquired the One Fund through its purchase of U.S. One).

Russell is one of the largest and best-known index providers, maintaining the benchmarks behind many of the most popular domestic equity ETFs; U.S.-listed exchange-traded products linked to the Russell 1000 have about $7 billion in AUM, while those linked to the Russell 2000 and Russell 3000 have about $15 billion and $3.4 billion, respectively (excluding value and growth spin-offs). The company is now establishing a bigger presence as a direct provider of ETFs, and has filled its product pipeline with a number of active and passively-indexes funds.

The new large cap Russell ETFs launched Friday include:

  • Russell 1000 Low Beta ETF (LBTA): This ETF seeks to replicate the Russell-Axioma U.S. Large Cap Low Beta Index, a benchmark that includes large cap U.S. stocks that have historically exhibited low beta. LBTA will charge an expense ratio of 0.49%.
  • Russell 1000 High Beta ETF (HBTA): This ETF seeks to replicate the Russell-Axioma U.S. Large Cap High Beta Index, which is designed to include large cap U.S. stocks that have historically exhibited high beta. HBTA will charge an expense ratio of 0.49%
  • Russell 1000 High Momentum ETF (HMTM): This ETF will replicate the Russell-Axioma U.S. Large Cap High Momentum Index, which delivers exposure to stocks with high medium-term momentum as determined by a screening/ranking methodology employed by the index. HMTM will charge an expense ratio of 0.49%.

In addition to those products, Russell also rolled out five funds offering exposure to investment strategies focusing on small cap stocks. This suite of products filters subsets of the Russell 2000 Index, a popular index that consists of the 2,000 smallest companies in the broad-based Russell 3000. Currently the two ETFs that replicate the Russell 2000, IWM and VTWO, have aggregate assets of more than $14.7 billion (IWM accounts for the lion’s share of that total).

The suite of small cap style funds includes:

  • Russell 2000 Low Beta ETF (SLBT): This ETF will track the Russell-Axioma U.S. Small Cap Low Beta Index, a benchmark designed to deliver exposure to small cap U.S. stocks that are predicted to have a low beta. SLBT will charge an expense ratio of 0.69%.
  • Russell 2000 High Beta ETF (SHBT): This ETF will track the Russell-Axioma U.S. Small Cap High Beta Index, which is designed to deliver exposure to large cap U.S. stocks that are predicted to have high beta. SHBT will charge an expense ratio of 0.69%.

Factor-based ETFs are a relatively new innovation; earlier this month, PowerShares introduced an S&P 500 High Beta Portfolio (SPHB) and S&P 500 Low Volatility Portfolio (SPLV). Those products utilize similar strategies to select stocks from the S&P 500 that exhibit either a high beta relative to the broad market or historically low volatility.

Growing Footprint

The launch of the ten new Russell ETFs brings the company’s total platform to 17 funds, including the One Fund (ONEF) that was acquired earlier this year from U.S. One. The other 16 Russell ETFs apply screens to the Russell 1000 and Russell 2000 indexes to come up with subsets consistent with various investment strategies, including equity income, growth at a reasonable price, and low P/E:

Strategy Large Cap Small Cap
Aggressive Growth AGRG n/a
Conservative Growth CONG n/a
Contrarian CNTR n/a
Equity Income EQIN n/a
GARP GRPC n/a
Low P/E LWPE n/a
Low Beta LBTA SLBT
High Beta HBTA SHBT
Low Volatility LVOL SLVY
High Volatility HVOL SHVY
High Momentum HMTM SHMO

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Disclosure: No positions at time of writing.