Russell Killing All but One in Its ETF Family

August 22, 2012 /

Russell Investments is liquidating all but one of its ETFs after nearly a year in operation amid relatively low trading volume.

The 25 passively managed ETFs tracked indexes that screened stocks for volatility, momentum, various types of growth, price-to-earnings ratios and dividends.

“While the innovation behind these new, next-generation ETF products received substantial interest in general, the market for them is still in its early days,” Russell said in a statement.

They returned anywhere from -0.3% year to date (Russell Developed ex-U.S. Low Beta ETF ( XLBT ) to 13.5% (Russell 2000 High Momentum ETF ( SHMO ). By contrast the S&P 500 returned 14.4% year to date.

The smallest one in the batch,Russell Small Cap High Dividend Yield ETF ( DIVS ), had merely $2.52 million in assets. The largest one,Russell 1000 Low Volatility ETF ( LVOL ), had nearly $70 million. Together they had gathered about $310 million in assets under management after nine to 15 months of trading.

The ETFs will close to new investments Oct. 9 and be fully liquidated by Oct. 24.

The one ETF spared from the chopping block,Russell Equity ETF ( ONEF ), is a very thinly traded, actively managed fund of ETFs with $4.2 million in assets. It charges a 0.51% annual management fee, which is low compared with 1% and more charged by most other actively managed ETFs. It currently holds 11 ETFs that track developed and emerging markets.

It’s up 11.07% this year and 17.21% in the past 12 months vs. 7.79% and 10.02% for the MSCI EAFE index of developed foreign markets.

The number of actual and announced ETF closures so far this year total 71, far surpassing the 38 for all of 2011, notes Ron Rowland, founder of and Capital Cities Asset Management in Austin, Texas.

Scottrade closed all of its 15 FocusShares ETFs Aug. 17. The same day, IndexIQ closedIQ South Korea Small-Cap ETF (SKOR) . Direxion announced this month that it’s shutting down nine triple-leveraged ETFs as of Sept. 5. Global X and Guggenheim both closed eight ETFs in February.

“The closings tend to come in waves,” Rowland said. “One of my theories is that firms prefer to not have these types of negative actions stand out, and closing them under the cover of multiple closings helps to make it less unique.”

If that theory proves true, many more ETFs could close this year, he added.

“The closures are healthy for the ETF industry as they prune products and sponsors who aren’t succeeding,” said Christian Magoon, CEO of Magoon Capital. “We have seen this trend in mutual funds over the years and continue to see it in ETFs.”


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