Although the ETF industry continues to expand at a rapid pace, we have seen a great deal of closures in the past few weeks. Socttrade abandoned its ETF lineup by closing FocusShares, while Direxion and IndexIQ both announced that a few of their funds were shutting down as well.
This trend is now apparently continuing with Russell Investments and their ETF lineup which is facing the axe too. The company recently announced that it would ‘review’ its ETF business and has apparently decided to shutter 25 of their 26 funds, closing every index-based product while keeping alive the Russell Equity ETF (ONEF - ETF report).
The decision comes as somewhat of a shock to many in the industry, although it should be noted that Russell has broadly been unable to duplicate its indexing success with its assets under management system. The company’s indexes were the basis for funds that had over $80 billion in assets and undoubtedly Russell wanted a piece of this action for their own bottom line (see Six Easy Ways to Target Low Volatility Stocks with ETFs).
However, this has proven to be more difficult for Russell than they initially thought as their entire lineup garnered just over $310 million in assets while only seven funds managed to hit even then $10 million mark for AUM.
Yet, despite this overall poor showing, a few funds did manage to see decent inflows in their short lifetimes. The Russell 100 Low Volatility ETF had over $65 million in assets while the Russell Equity Income ETF managed to cross the $50 million mark as well.
Meanwhile, the actively managed Russell Equity ETF (ONEF - ETF report) was actually one of the three least popular funds for the company and was merely just a carryover for the firm when it bought ETF issuer U.S. One a few years back. Yet it appears as though, despite the rough road that many active ETFs have had in accumulating assets, that Russell is throwing its weight behind the active management wave in the industry (see Three Overlooked Active ETFs).
The impacted funds will be closed to new investment on October 9th and then delisted on October 16th. Full liquidation of the funds is intended to be completed about a week later, on October 24th so in between those two dates no activity will take place, besides the winding down of the investment, before the final distribution is made to investors (see more in the Zacks ETF Center).
“Recognizing the role that ETFs can play in an investment portfolio, Russell will continue to focus on offering solutions in the actively-managed, asset allocated ETF space as part of its core capability in investment strategy implementation as well as in the passive ETF space through its index licensing business” wrote the company in a recent press release (you can see the full list of the funds closing on the link as well). “Russell remains the underlying index provider for many ETFs around the world, which have more than $80 billion in assets under management, and will continue its strong partnership with all of its ETF sponsor clients.”
Personally, I am very surprised that Russell didn’t try to sell off at least a few of its funds that had a decent amount of assets to another ETF firm. Furthermore, the tilt towards active management, and a fund that has never really caught on in over two years on the market, is strange to say the least.
Many active funds have had great trouble amassing a meaningful amount of assets and ONEF has been no exception. Still, it appears as though this is where the ETF industry is heading, as more firms are putting out more active ETFs while shunning some passive management techniques in today’s market environment (read Huntington Launches Its First ETF).
Despite the many negatives of this situation and the puzzling business decision, it at least shows that ETF issuers are now not quite as afraid to close down underperforming funds. Some consolidation is still undoubtedly needed in the space, so this trend in the near term could go a long way in terms of making the ETF industry that much healthier for the long term even though this is clearly a short-term setback for the space.
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