Russell Investments held the grand opening of their newly developed Investment Discipline suite of ETFs last Thursday (5/19/11). The six new ETF introductions draw on Russell’s decades of expertise in multi-manager research and index construction. With this rollout, Russell aims to provide next-generation ETFs to help investors construct portfolios and manage risk. The products offer focused, transparent and consistent exposure to U.S. large-cap equities across six professional investment manager disciplines.
There are now more than 60 ETFs on the market containing the Russell name, but until recently, that name only reflected the underlying index instead of the issuer. Last month, the first ETF with a Russell brand name became a reality when the One Fund ETF (ONEF) became the Russell Equity ETF (ONEF). With last week’s announcement (press release) of the new Investment Discipline ETFs, Russell is now fully engaged as an ETF sponsor.
Each Russell Investment Discipline ETF tracks the performance of a corresponding Russell Investment Discipline Index, which is intended to reflect the return patterns of a particular investment strategy. Russell’s managing director of global ETF distribution, Andy Arenberg, said “In developing this first set of ETF products, we sought out the six most prevalent strategies professional investment managers use when selecting individual securities and worked with our investment and index teams to build products that give investors access to actual investment approaches, rather than simply a broad market, style or sector index.”
Overview of New ETFs
The new ETFs all have an expense ratio of 0.37% and are constructed from a universe based on the Russell 1000 Index, the most widely used U.S. large-cap index among institutional investors. A brief description of each fund and underlying index follows, along with links for investors seeking additional details. The prospectus (pdf) covers all six funds.
Russell Aggressive Growth ETF (AGRG) – the underlying Russell U.S. Large Cap Aggressive Growth Index selects securities using an aggressive growth investment discipline. It focuses on companies expected to have above average near-term earnings growth. The discipline includes companies with average to high consensus forecasted earnings and average to high one-year historical sales growth. It excludes companies with low earnings retention (high dividend yields) and stocks with low price to book ratios (AGRG overview and top holdings).
Russell Consistent Growth ETF (CONG) – the underlying Russell U.S. Large Cap Consistent Growth Index selects securities using a consistent growth investment discipline. It focuses on companies with above average long-term earnings forecasts and consistent historical earnings growth. The discipline includes companies with average to high consensus forecasted earnings, consistent earnings (average to low earnings per share volatility), and efficient asset utilization (average to high return on assets for the prior quarter). It excludes companies with low anticipated growth prospects as measured by a low price to book ratio (CONG overview and top holdings).
Russell Growth at a Reasonable Price ETF (GRPC) – the underlying Russell U.S. Large Cap Growth at a Reasonable Price Index selects securities using a growth at a reasonable price (GARP) investment discipline. It focuses on stable companies that are moderately priced based on their long-term forecasted earnings growth relative to their price to earnings ratio (PEG ratio). The discipline includes companies with consistent earnings (average to low earnings per share volatility), that are profitable (average to high return on equity), and are of high quality (S&P Quality Rank of B or above or a low debt to equity ratio). It excludes stocks with a high current P/E ratio and high five-year PEG ratio (price to one-year forecasted earnings divided by its five-year forecasted earnings growth rate) (GRPC overview and top holdings).
Russell Contrarian ETF (CNTR) – the underlying Russell U.S. Large Cap Contrarian Index selects securities following a contrarian investment discipline. It focuses on companies that have consistently lagged the market and their sector peers. The discipline includes companies where opportunities exist for the stock price to improve as measured by a low historical price to sales multiple. It excludes companies that have outperformed their market and sector peers as measured by cumulative total return over the last three to five years (CNTR overview and top holdings).
Russell Equity Income ETF (EQIN) – the underlying Russell U.S. Large Cap Equity Income Index selects securities using an equity income investment discipline. It focuses on companies that demonstrate the ability to pay a stable dividend. The discipline includes companies expected to pay a dividend or have paid a dividend in the past year. It excludes stocks with high variability in earnings (high earnings per share volatility), low profitability (low return on equity), or forecasted negative earnings over the next year (EQIN overview and top holdings).
Russell Low P/E ETF (LWPE) – the underlying Russell U.S. Large Cap Low P/E Index selects securities using a low price to earnings investment discipline. It focuses on companies trading at lower multiples relative to their prior level or their sector peers. The discipline includes companies that have a price to one-year forecasted earnings, price to trailing earnings, and/or price to trailing cash flow multiple below their five-year historical average. It excludes stocks that have a price to sales or price to book multiple that exceeds their sector peers (LWPE overview and top holdings).
Russell has indeed made a grand entrance into the ETF space. They have wisely chosen to compete on innovation instead of following Vanguard’s approach of competing on price. This is just a first step for Russell. Earlier today, they announced 10 new factor-based indexes on which to build additional ETF products.
The Russell name has a strong reputation in the professional investment community, but the connection for many retail investors doesn’t go far beyond the Russell 2000, the venerable small cap index. Therefore, one of Russell’s biggest challenges will likely be creating investor awareness.
As part of this launch, the new Russell ETF website offers an extensive array of educational and product support information. Navigation is both easy and intuitive. However, yield and quantity of holdings information is currently missing.
Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.