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 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
- Russell 1000® Low Beta ETF
- Russell 1000® High Volatility ETF
- Russell 1000® Low Volatility ETF
- Russell 1000® High Momentum ETF
- Russell 2000® High Beta ETF
- Russell 2000® Low Beta ETF
- Russell 2000® High Volatility ETF
- Russell 2000® Low Volatility ETF
- Russell 2000® High Momentum ETF
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 earlier this 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."
