Russell Investments said Friday that it will close all of its U.S. passively managed exchange-traded funds. The announcement came as the Seattle-based company reported just over $300 million in assets under management in the combined 25 funds.
The company said the action will occur on or before Oct. 24.
An ETF is generally considered to need $50 million in assets in order to be profitable. Russell averaged just over $12 million in each fund. The announcement does not include the Russell Equity ETF (ONEF), an actively managed fund that is benchmarked to the Russell Developed Large Cap Index.
Russell noted in its statement that while the products received substantial interest, the market for them “is still in its early days,” and blamed “challenging equity market conditions” since the launch of the products.
"The ETF universe has accumulated $1.2 trillion in assets, but the industry is still highly concentrated within the top three names, which hold over $1 trillion in assets," Tom Lydon, president of Global Trends Investments, told AdvisorOne. "As such, smaller ETF providers, especially new entrants that are trying to carve out their spot in the market, have an extremely tough time."
Russell attempted to propel its ETF business by offering specialized and niche products that would help set itself apart, he added.
"In theory, this should help differentiate its products and attract investors who want more focused investment strategies," Lydon said.
However, he notes, investors have been shy on the uptake. Russell ETFs may have been too specialized, requiring investors to delve deeper to understand the inner workings.
"To the advisor, simple has been often better. As you can see, the largest funds out there mostly reflect traditional beta indexing methodologies. Perhaps, the Russell ETFs are ahead of their time and someday, as more advisors become comfortable with ETFs, people will appreciate what Russell attempted."
The timeline for the close is as follows:
- The funds will be delisted from NYSE Arca or the NASDAQ Stock Market, as the case may be, effective at the close of trading on Oct. 16, with the respective exchanges halting trading in the funds before the open of trading on Oct. 17.
- Full liquidation of the funds is intended to be completed by Oct. 24.
- On Oct. 16, the funds will commence the process of liquidating their assets and, consequently, will not be pursuing their investment objectives.
- During the liquidation period between Oct. 16 and Oct. 24, the passively managed ETFs will not carry on any business, except for the purposes of winding up their affairs and distributing investment income, capital gains and assets to shareholders, who may redeem shares at any point prior to the liquidation date.