Russell, the investment company that began launching its own ETFs in May 2011 with a distilled focus on indexed smart-beta strategies, will close all but one of its funds because they haven't gathered the assets to justify their continued existence.
But the Seattle-based company, which will shut the funds in October, won’t abandon its ETF plans entirely. Instead it will narrow its focus on actively managed strategies. It made tangible that strategic shift by leaving open the actively managed Russell Equity ETF (ONEF), according to a company press release.
The company made a splashy debut in the spring of last year with the rollouts of numerous smart-beta ETFs, such as the Russell 1000 Low Volatility ETF (LVOL).
It said at the time the next logical step in the ETF revolution was enhanced beta strategies—such as Rob Arnott’s “fundamental indexing"—that have moved the world of index investing a bit closer to active management.
“Regarding the closures, while the innovation behind Russell's next-generation ETF products received substantial interest in general, the market for them is still in its early days,” the company said in the press release.
Indeed, while investors have bought smart-beta funds—most notably in the PowerShares S'P 500 Low Volatility Portfolio (SPLV), which is fast approaching $2.5 billion in assets. But Russell’s funds such as the $68 million LVOL never took off. Some industry sources have said the funds’ strategies were difficult to grasp.
“Given challenging equity market conditions since the launch of these products, Russell determined that proposing the liquidation of the passively managed ETFs at this time is in the best interests of the ETFs and their shareholders,” the company said. It noted all 25 funds had total assets of $310 million as of July 31.
“Russell will continue to focus on offering solutions in the actively managed, asset allocated ETF space as part of its core capability in investment strategy implementation, as well as in the passive ETF space through its index licensing business."
ONEF was Russell’s first ETF. It is an active fund-of-funds asset allocation strategy composed of index ETFs.
Russell remains the underlying index provider for many ETFs around the world, which have more than $80 billion in assets under management, and will continue its strong partnership with all of its ETF sponsor clients.
Russell said it will close the affected funds to new investment on Oct. 9, 2012.
The funds will then be delisted from either the New York Stock Exchange’s Arca platform or from the Nasdaq as of the close on Oct. 16, with each of the exchanges halting trading in the shares on Oct. 17.
Russell said the funds will be completely liquidated by Oct. 24, and that shareholders can sell their positions in the funds through Oct. 16.
Shareholders remaining on Oct. 16 will receive cash equal to the amount of the net asset value of their shares as of that date. That sum will include any capital gains and dividends.
Shareholders receiving the final liquidation cash distribution won’t incur transaction fees from their broker-dealer in connection with this distribution or the cancellation of their shares.
The Affected Funds
Following is a list of the funds Russell is shutting down:
- Russell 1000 High Beta ETF (HBTA)
- Russell 1000 Low Beta ETF (LBTA)
- Russell 1000 High Volatility ETF (NYSEArca HVOL)
- Russell 1000 Low Volatility ETF (LVOL)
- Russell 1000 High Momentum ETF (HMTM)
- Russell 2000 High Beta ETF (SHBT)
- Russell 2000 Low Beta ETF (SLBT)
- Russell 2000 High Volatility ETF (SHVY)
- Russell 2000 Low Volatility ETF (SLVY)
- Russell 2000 High Momentum ETF (SHMO)
- Russell Developed ex-U.S. Low Beta ETF (XLBT)
- Russell Developed ex-U.S. Low Volatility ETF (XLVO)
- Russell Developed ex-U.S. High Momentum ETF (XHMO)
- Russell Aggressive Growth ETF (AGRG)
- Russell Consistent Growth ETF (CONG)
- Russell Contrarian ETF (CNTR)
- Russell Equity Income ETF (EQIN)
- Russell Growth at a Reasonable Price ETF (GRPC)
- Russell Low P/E ETF (LWPE)
- Russell Small Cap Aggressive Growth ETF (SGGG)
- Russell Small Cap Consistent Growth ETF (SCOG)
- Russell Small Cap Contrarian ETF (SCTR)
- Russell Small Cap Low P/E ETF (SCLP)
- Russell High Dividend Yield ETF (HDIV)
- Russell Small Cap High Dividend Yield ETF (DIVS)
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