June 6, 2011

Russell Introducing 10 Risk-Flavored ETFs

Russell uses beta, volatility and momentum because its research shows these three factors have a strong influence on portfolio returns

Russell Investments latest 10 ETFs -- the Russell Factor exchange-traded funds -- 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.

 “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.”

The Russell Factor ETFs are designed to track factor indexes that were created by Russell Indexes in partnership with Axioma. The new ETFs with ticker symbols are: 

  • Russell 1000 High Beta ETF (HBTA)
  • Russell 1000 Low Beta ETF (LBTA)
  • Russell 1000 High Volatility ETF (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)

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 aims to track its individual Russell-Axioma Factor Index. These Russell-Axioma Factor Indexes are reconstituted monthly to maintain their focus on the respective specific factor.

According to Russell, it uses beta, volatility and momentum as its three risk factors because its research shows strong influences on portfolio returns. 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-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, in a statement. “Russell Factor ETFs can play an important role in helping sophisticated investors strategically reach their investment goals.”

The Russell Factor ETFs began trading Friday, May 27 on the NYSE Arca and are Russell’s second round of ETF products launched in the U.S. market. On May 19, the company unveiled its Russell Investment Discipline ETFs.

The Russell’s large-cap Factor ETFs have annual expense ratios of 0.49%, while Russell’s small-cap Factor ETFs charge 0.69 percent.

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