Now the firm is trying to establish itself as a manager of ETFs.
Russell last month launched 16 new ETFs — six “investment discipline” funds and ten “factor” ETFs.
The Russell investment discipline line of ETFs is hand-tailored by manager research and doesn’t weight stocks solely by market cap. The six new Russell ETFs will try to optimize the investment styles that professional investment managers use when selecting securities in the various asset classes, the firm says.
“The unique process an investment manager uses to select stocks is at the heart of what differentiates a fund from its benchmark and other funds,” said David Koenig, investment strategist at Russell. “This is the crux of asset management. Though this may seem obvious, gaining full understanding of a manager’s process can be challenging for investors because the manager’s methodology is often not completely transparent.”
In a study based on large-cap growth in actively managed mutual funds over five years, Koenig reveals that varying investment manager styles may yield a wide range of resulting performances.
“Looking for exposure to speciﬁc types of companies—for example, the largest, fastest-growing companies—would need to know more about a manager’s approach than just the fund’s style classiﬁcation to ensure that they were gaining the exposure they had targeted,” commented Koenig.
The new investment discipline ETFs include:
- Russell Aggressive Growth ETF (NYSEArca: AGRG). AGRG will provide exposure to large-cap stocks that have historically experienced sales growth and strong earnings growth. Such companies may have elevated earnings volatility and are part of high-growth sectors that may be affected by changes in technology or in cyclical sectors backed by positive economic growth.
- Russell Consistent Growth ETF (NYSEArca: CONG). CONG will provide exposure to large-cap stocks with historically low volatility in earnings, strong earnings growth and historically high asset returns. Managers will look for companies with sound business models and sustainable competitive advantages. Companies that show consistent growth usually experience below average earnings volatility and are located in sectors with stable and sustainable growth.
- Russell Growth at a Reasonable Price ETF (NYSEArca: GRPC). GRPC will provide exposure to large-cap stocks that proven to generate consistent earnings, have low debt-to-equity ratios and are moderately priced based on long-term earnings growth as compared to their price-to-earnings ratio. These high-quality companies will have maintained above-average returns on equity and below-average earnings volatility. Such companies usually include large, established companies with moderate valuations and growth rates but continue to show strong competitiveness and growth.
- Russell Equity Income ETF (NYSEArca: EQIN). EQIN will provide exposure to large-cap stocks that pay stable dividends as compared to average dividend projections or to the previous year’s dividend. The company holdings will have low debt-servicing costs and will be generating revenue, earnings and cash flow to maintain or increase dividends over time. These types of companies are usually less volatile and generate returns from dividends and steady capital appreciation.
- Russell Low P/E ETF (NYSEArca: LWPE). LWPE will provide exposure to large-cap stocks that have low valuations relative to one-year projected earnings and are priced below historic price to trailing earnings and price to cash flows. These companies will show low valuations due to temporary fundamental weaknesses or as a result of cyclical trends based on business and economic cycles.
- Russell Contrarian ETF (NYSEArca: CNTR). CNTR will provide exposure to large-cap companies that have consistently underperformed the market but where stock prices may potentially improve due to shifts in industry trends, new management or restructured business models. This type of fund will have a long-term outlook and include companies with very low valuations.
Russell has also introduced several “factor” ETFs that target specific market risk factors such as beta, volatility and momentum.Max Chen contributed to this article.