Source has launched the Source Russell Europe SMID 300 UCITS ETF, providing exposure to the Russell Europe SMID 300 Net TR index, which offers liquid exposure to Europe’s small- and mid-cap equity markets.
The ETF offers access to a segment of the market which is gaining increasing investor interest; there are currently EUR9bn assets in the ETF small and mid-cap space in Europe, up from EUR1.8bn in 2012.
The index contains 300 highly liquid constituents. Constituents are selected from the Russell Global Index comprised of approximately 10,000 stocks. This is reduced to European small and mid-cap stocks, defined as those companies falling between the 75th and 95th percentile by market capitalisation of the Russell Global Index. Stocks with an average daily trading volume lower than EUR2m are then excluded. The remaining eligible stocks are ranked by ‘speed to trade’ defined as those with the lowest free float market capitalisation relative to their average daily trading volume. The 300 highest-ranked stocks are selected and then weighted by free float-adjusted market capitalisation. The index is reviewed and rebalanced annually.
This approach allows for both higher investment capacity and the inclusion of stocks from across the capitalisation range, without compromising liquidity. Russell Europe SMID 300 Net TR index comprises stocks like Baratt Developments, easyJet and Hargreaves Lansdown.
In 2013, small and midcap out performed large cap across developed markets. In Europe, the Russell Europe SMID 300 Net TR index outperformed the Euro Stoxx 50 TR index by 7.50 per cent and in the US, the Russell 2000 index outperformed the S&P 500 TR index by 6.70 per cent over the year.
According to the Morningstar fund database, when SMID is compared to other active and index fund peers, SMID performed strongly over a five year period vs. both small and mid-cap funds. The SMID index delivered first quartile performance 45 per cent of the time vs. small-cap funds and 55 per cent of the time vs. mid-cap funds. Over the last five years the SMID index outperformed the average return of the universe of small cap funds 58 per cent of the time; and mid-cap funds 73 per cent of the time.
“In each market segment, Source aims to offer efficient and representative exposure, meeting investor needs,” says Source CEO Ted Hood. “This product offers European investors access to a broad cross-section of Europe’s promising small- and mid-cap markets.”
“The Russell Europe SMID 300 Index has been designed with considerable input from the trading community,” says Ron Bundy, CEO, indexes at Russell Investments. “Its innovative construction ensures ease of use in the trading environment, which translates to lower costs and swifter execution for investors. We are very pleased to help Source expand its offering for European investors.”
The Source Russell Europe SMID 300 UCITS ETF trades on Deutsche Börse in EUR. The management fee is 0.35 per cent per annum.