InvestmentsJan 28 2015

Rothschild creates first ETF product

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Rothschild creates first ETF product

Risk Based Investment Solutions (RBIS), a subsidiary of Rothschild, and Source have launched the Source R Equal-Risk European Equity UCITS ETF.

The strategic beta product is the first to track the R Risk-Based European Equity Index and Rothschild’s first product to use an ETF structure.

RBIS, a subsidiary of Rothschild dedicated to smart beta portfolio management, and Source, an investment firm specialising in ETPs, created the product to provide investors with broad European equity exposure with lower volatility than traditional market capitalisation-weighted investments.

The ETF and the index series provide investors with a risk-based methodology, as opposed to traditional cap-weighted approaches.

The R Risk-Based European Equity Index tracks the individual volatility of the largest 250 stocks from 18 European countries and the correlations between them, while systematically removing 50 per cent of the stocks considered to be highest in risk. The 125 remaining stocks are weighted so that each one contributes the same amount of risk.

A propriety range of indices, the R Risk-Based Equity Index Series, was launched last November through collaboration between RBIS and third-party calculation agent Markit. The series is comprised of five equity indices based on in-house new generation Equal Risk Contribution – European, UK, US, Japanese, and Global Developed Market equities.

The London Stock Exchange offers the ETF in pounds sterling, while the Deutsche Borse offers it in euros.

Comment:

It was a busy 2014 for Source – it launched Europe’s first biotech ETF and the first European ETF to track the JPX Nikkei 400 Index, a Japanese index which launched last summer, full of the country’s most profitable companies.

Rothschild is the latest in a number of asset managers that Source has worked with to launch ETFs, including PIMCO and Ashmore Group, and a volatility tracker with JP Morgan and a smart beta fund with Goldman Sachs.

This latest offering, in conjunction with Rothschild’s RBIS, currently has €12,172,332 worth of assets under management and is going for an offer price of £8.65 on the LSE.

The R Risk-Based European Equity Index uses risk as a primary deciding factor when deciding which stocks to invest in.The equal risk contribution (ERC) method of investing combines volatility and correlation as risk factors to produce a portfolio where each invested asset contributed the same level of risk and aims to lower the index volatility.

This method of investing makes this a synthetic fund with partial replication, as it does not invest in every share in the index and serves the investment objective of focusing on risk.