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Source and Rothschild launch Europe’s first equal risk ETF


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

This is the first Rothschild product available using an ETF structure. It aims to provide broad European equity exposure with lower volatility than traditional market-capitalisation-weighted investments.
“While there are countless ways in which to select what goes into a portfolio and how much to weight each constituent, most traditional methods treat risk as an incidental consequence of the process,” says Herve Foucault, Managing Director, Business and Product Development at RBIS. “The R Risk-Based European Equity Index effectively turns the process around by using risk as an input.” 
The Index is constructed by evaluating the individual volatility of the largest 250 stocks from 18 European countries, as well as the correlation between stocks, and systematically removing the riskiest 50% of stocks. The remaining 125 stocks are weighted so that each individual stock contributes an equal amount of risk. The Index is reviewed quarterly and rebalanced monthly.
“Smart beta funds have been growing in demand as investors seek alternate sources of returns and opportunities to reduce portfolio risk,” says Michael John Lytle, Chief Development Officer at Source. “We are delighted to be working with Rothschild on this pioneering product. This form of risk reduction is the next iteration beyond volatility targeting and minimum variance strategies.” 

Based on simulations conducted by RBIS, the R Equal-Risk European Equity Index delivered better risk-adjusted performance than broad European equity indices over the past five years.
The ETF is available in EUR on the Deutsche Borse (Xetra) and in GBP on the London Stock Exchange.

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