Russell Investments has launched the first comprehensive series of Factor ETFs designed to offer practical solutions to help sophisticated investors manage risk exposures within their portfolios. The Russell Factor ETFs, a series of 10 U.S. equity ETFs, aim to deliver focused large cap and small cap exposure to five significant risk factors – high beta, low beta, high volatility, low volatility and high momentum – while also manage portfolio turnover and control exposure to other non-targeted risk factors. These new ETFs, which began trading Friday on the NYSE Arca, constitute Russell’s second wave of ETF products launched in the U.S. market in May, following the launch of Russell Investment Discipline ETFs™ on May 19.
“The trade-off between risk and return has always been the core of investing,” said James Polisson managing director of Russell’s global ETF business. “However, the factors that constitute risk, as well as the appropriate way to measure and manage it, are often a gray area and not fully accounted for in the investment decision-making process. With the advent of the Russell Factor ETFs, we believe investment professionals now have an efficient, cost-effective way to help minimize unintended influences and help manage individual risk factor exposures within their portfolios.”
While ‘risk’ is commonly defined as market uncertainty and is often measured by observing an asset’s total return volatility over time, Russell analysts believe investors today have a growing awareness that risk and return are often influenced by indirect risk factors. Three risk factors that have shown strong influences on portfolio returns, based on Russell’s research, are beta, volatility and momentum. Beta is a measure of a stock’s price sensitivity relative to the broad market, while volatility measures a security’s total risk, rather than relative risk, and momentum is a measure of how quickly a stock has appreciated over the medium term. The Russell Factor ETFs, designed to track factor indexes that were created by Russell Indexes in partnership with Axioma, Inc. are:
- Russell 1000® High Beta ETF (NYSE:HBTA)
- Russell 1000® Low Beta ETF (NYSE:LBTA)
- Russell 1000® High Volatility ETF (NYSE:HVOL)
- Russell 1000® Low Volatility ETF (NYSE:LVOL)
- Russell 1000® High Momentum ETF (NYSE:HMTM)
- Russell 2000® High Beta ETF (NYSE:SHBT)
- Russell 2000® Low Beta ETF (NYSE:SLBT)
- Russell 2000® High Volatility ETF (NYSE:SHVY)
- Russell 2000® Low Volatility ETF (NYSE:SLVY)
- Russell 2000® High Momentum ETF (NYSE:SHMO)
Each Russell Factor ETF is constructed from the membership list of the U.S. large-cap Russell 1000® Index or the U.S. small-cap Russell 2000® Index, and each seeks the investment results that closely correspond to its individual Russell-Axioma Factor Index. These Russell-Axioma Factor Indexes, launched last week, are reconstituted monthly to maintain their focus on the respective specific factor. The Russell ETFs built on them have a total expense ratio of 0.49% for Russell’s large cap Factor ETFs and 0.69% for Russell’s small cap Factor ETFs.
“The Russell-Axioma Factor Indexes use a formal risk modeling process to help neutralize other factor exposures in order to manage turnover in the portfolio,” said Greg Friedman, managing director of Russell’s global ETF product group. “Axioma has quickly become a highly respected name in risk management, and coupling their empirical research with Russell’s tradition of innovation in portfolio construction and index creation has resulted in these unique investable products. Russell Factor ETFs can play an important role in helping sophisticated investors strategically reach their investment goals.”
The Russell ETFs business has assembled a growing team of ETF veterans who recognized an opportunity to expand Russell Investments’ presence in the marketplace as a sponsor of ETFs that offer a differentiated set of market exposures.
”Exposures to individual risk factors have not been readily accessible to many investment professionals in the past,” said Russell ETFs Director of Institutional and RIA Sales Mike Scanlon. “Russell Factor ETFs give these investors new ways to help manage the risk exposures within their portfolios.”
The following chart provides a summary of each new Russell Factor ETF:
|Russell Large Cap Factor ETFs||Ticker||Focused Exposure|
|Russell 1000® High Beta||HBTA||Large cap stocks with the highest predicted beta, or sensitivity to price changes of the broad market, over the next three to six months|
|Russell 1000® Low Beta||LBTA||Large cap stocks with the lowest predicted beta, or sensitivity to price changes of the broad market, over the next three to six months|
|Russell 1000® High Volatility||HVOL||Large cap stocks that have exhibited the highest total return variability over the previous 60 trading days|
|Russell 1000® Low Volatility||LVOL||Large cap stocks that have exhibited the lowest total return variability over the previous 60 trading days|
|Russell 1000® High Momentum||HMTM||Large cap stocks that have the highest cumulative returns over the previous 250 trading days, excluding the last 20 trading days|
|Russell Small Cap Factor ETFs||Ticker||Focused Exposure|
|Russell 2000® High Beta||SHBT||Small cap stocks with the highest predicted beta, or sensitivity to price changes of the broad market, over the next three to six months|
|Russell 2000® Low Beta||SLBT||Small cap stocks with the lowest predicted beta, or sensitivity to price changes of the broad market, over the next three to six months|
|Russell 2000® High Volatility||SHVY||Small cap stocks that have exhibited the highest total return variability over the previous 60 trading days|
|Russell 2000® Low Volatility||SLVY||Small cap stocks that have exhibited the lowest total return variability over the previous 60 trading days|
|Russell 2000® High Momentum||SHMO||Small cap stocks that have the highest cumulative returns over the previous 250 trading days, excluding the last 20 trading days|
About Russell ETFs
Russell ETFs were created to deliver a wide range of clearly differentiated market exposures that are designed to help investors meet their investment goals. With Russell ETFs, sophisticated investors gain access to unique exposures ranging from investment disciplines to risk factors and to broadly targeted exposures using an ETF of ETFs format. As a result, these investors now have a whole new set of exposures for constructing portfolios and managing risk. For more information, go to www.russelletfs.com.
About Russell Investments
Founded in 1936, Russell Investments is a global financial services firm that serves institutional investors, financial advisers and individuals in more than 40 countries. Over the course of its history, Russell’s innovations have come to define many of the practices that are standard in the investment world today, and have earned the company a reputation for excellence and leadership. The firm had over $161 billion in assets under management, as of March 31, 2011.
Axioma develops and markets innovative risk analysis, portfolio rebalancing and performance attribution products for the financial services industry. The company’s products are designed to help investment firms manage risk, increase returns and improve operational efficiency. Axioma is distinguished by its innovative products and thought leadership on portfolio optimization and risk modeling. Axioma’s risk models are fast becoming the standard for risk management in the financial industry.
Russell Investments is a Washington, USA Corporation, which operates through subsidiaries worldwide and is a subsidiary of The Northwestern Mutual Life Insurance Company.
This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an "as is" basis without warranty.
Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.
Investors should carefully consider the investment objectives, risks, charges and expenses before investing in Russell ETFs. This and other information can be found in the funds, prospectuses, which may be obtained by calling 888-RSLETFS (888-775-3837) or downloading the file from russelletfs.com. Read the prospectus carefully before investing. Investing involves risk including possible loss of principal.
Past performance is not a guarantee of future results.
ETFs are subject to risks similar to those of stocks, including those related to short-selling and margin account maintenance, if applicable. Funds that emphasize exposure to high beta, high volatility or high momentum stocks are seen as having a higher risk profile than the overall market. However, a portfolio comprised of high beta or high volatility stocks may not produce investment exposure that is more sensitive or has higher variability to changes in such stocks’ price levels. Positive momentum stocks may experience periods of relative underperformance and may not produce investment experience consistent with prior performance. Funds that emphasize exposure to low beta or low volatility stocks are seen as having a lower risk profile than the overall market. However, a portfolio comprised of low beta or low volatility stocks may not produce investment exposure that is less sensitive or has lower variability to a change in price level. The funds are passively managed and may not match or achieve a high degree of correlation with the return of their corresponding Index. As with all investments, there are certain risks of investing in an ETF, and you could lose money on an investment in an ETF.
Not FDIC Insured. May Lose Value. Not Bank Guaranteed.
New ETF and New Index. Russell ETFs and their corresponding Indexes are new and have limited operating history. New indexes are also subject to errors in construction which may result in unintended exposures.
Russell Investment Discipline ETFs are new and have limited operating history. There is no assurance the investment process will consistently lead to successful investing. There is no assurance the stated objectives will be met.
Russell ETFs are distributed by ALPS Distributors, Inc. (“ALPS”). Russell Investment Management Company (“RIMCo,” dba Russell Investments) serves as the investment advisor to the ETFs. ALPS and RIMCo are separate and unaffiliated.
ALPS Distributors, Inc. does not distribute products outside the U.S. and is not the distributor for the Russell High Dividend Australia Shares ETF and Russell Australian Value ETF in Australia.
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