- Russell Australian Value ETF is the first style-based ETF in Australia
- Based around new Russell Australia High Value Index
- Designed with specific applications for institutional investors
Russell Investments is aiming to capture the inherent value premium in the Australian stock market with the launch of its second Australian ETF, the Russell Australian Value ETF (ASX code RVL).
RVL taps into Russell research on value premiums which shows that over time passive value based strategies have typically delivered a premium of 1.5%-3% over the broad market in Australia.
There is also a growing investor desire to capture this premium, creating a compelling opportunity for Russell to bring this opportunity to investors in the easily accessible form of an ETF.
“Before launching RVL, we talked to a range of investors to see what they wanted and found there is a gap for something which provides an easy way to access this part of the market,” said Scott Bennett, portfolio manager at Russell Investments. “Russell pioneered style based indexes back in 1987 and we are excited to utilise our well regarded index capabilities and decades of experience to develop a local solution for the Australian market.”
RVL will provide exposure to a specially developed index, the Russell Australia High Value Index. The index works by taking the Russell Australia Large Cap Index and assigning all stocks a value score and a growth score based on price to earnings ratios and medium term earnings growth. From this each stock is given a total value score, which then determines the weight of each stock in the index.
First style-based ETF in Australia targets institutional investors
RVL will be the first style-based ETF to hit the Australian market and will have specific applications for institutions. It will aim to complement rather than compete with managed funds and can potentially be used as a plug for an active manager, while a new manager is being found. Alternatively for fund managers who only want a value exposure at certain time, the ETF can be a quick and easy way of tilting a portfolio towards value.
“We have spoken extensively to institutions about their needs and potential future use of ETFs and discovered there is a gap in the market for a flexible, value-style tool,” said Mr Bennett
Another specific institutional use for RVL is for short term cash management. RVL provides a more targeted, easy to implement, exposure to help institutions manage shorter term cash positions.
RVL can also be used by managers who want to short value stocks, as opposed to accessing the exposure through a managed fund where it is only possible to go long.
In addition, RVL is well-suited to advisers and brokers, particularly those with a style based approach.
“As with our first ETF, we have invested heavily in researching what investors, in particular institutions want from an ETF and have developed this tailored solution. As Australia’s first style-based ETF, we are hoping to provide an easy way to access the value premium in the Australian market,” Mr Bennett concluded.
Russell’s approach to building ETFs based on investor needs has resonated well with investors. Russell’s first Australian ETF, the Russell Australia High Dividend ETF (RDV), has amassed over $140M assets under management since its launch less than a year ago.
