Russell Investments, the creator of stock-market indexes bearing its name, has filed paperwork with the SEC to start exchange- traded funds based on its own indexes. Russell has filed for a “RUSSELL GLOBAL 3000 VALUE ETF” (no symbol listed at this time) will seek investment results that correspond generally to the total return, before fees and expenses, of the  Russell Global 3000 Value Index.

The Fund is an index-based exchange-traded fund. The Russell Global 3000 Value Index (the “Underlying Index”) is sponsored by Frank Russell Company (“Russell” or the “Index Provider”), an affiliate of the Fund and Russell Investment Management Company, the Fund’s investment adviser (“RIMCo”). The Index Provider determines the composition and relative weightings of the stocks in the Underlying Index and publishes information regarding the market value of the Underlying Index.

Principal Investment Strategies of the Fund 

RIMCo uses a “passive” or indexing approach to try to achieve the Fund’s investment objective. Unlike many investment companies, the Fund does not try to “beat” the index it tracks and does not seek temporary defensive positions when markets decline or appear overvalued. 

Indexing may reduce the chance that the Fund will substantially outperform its Underlying Index but also may reduce some of the risks of active management, such as security selection. Indexing seeks to achieve lower costs and better after-tax performance by keeping portfolio turnover low in comparison to most actively managed investment companies.

The Fund generally invests at least 80% of its assets in securities of the Underlying Index and in depositary receipts representing securities of the Underlying Index. The Fund may invest the remainder of its assets in securities not included in its Underlying Index but which RIMCo believes will help the Fund track its Underlying Index, and in futures contracts, options on futures contracts, options and swaps as well as cash and cash equivalents, including shares of unregistered money market funds advised by RIMCo.

The Underlying Index has been developed by Russell as an equity benchmark for the performance of the most investable, largest capitalization global value stocks plus the most investable small capitalization global value stocks. The Underlying Index measures the performance of the Russell Global 1000 Value Index plus the Russell Global 2000 Value Index.

The Russell Global 1000 Value Index has been developed by Russell as an equity benchmark for the performance of the most investable, largest capitalization global value stocks. The Russell Global 2000 Value Index has been developed by Russell as an equity benchmark for the performance of the most investable small capitalization global value stocks.

The Underlying Index includes (i) the most investable, largest capitalization value securities across the globe by market capitalization traded on a major U.S. or foreign stock exchange plus (ii) the most investable, largest capitalization, global value securities of the Russell Global Small Cap Index by market capitalization traded on a major U.S. or foreign stock exchange. The Underlying Index includes stocks of both developed and emerging markets countries. As of June 2009, the Underlying Index consisted of 1800 stocks with a capitalization ranging from $348 billion to $540 million. This represents approximately 34% of the market capitalization of all publicly traded equity securities globally. The Underlying Index will include security level representation from the majority of countries comprising the Russell Global Large Cap Index and Russell Global Small Cap Index though not necessarily all markets or at the same weights.

The Underlying Index is constructed using float-adjusted market capitalization weights. The Index Provider screens companies globally by total market capitalization and applies minimum size and investability standards and liquidity screens in order to determine the component stocks of the Underlying Index. Stocks are categorized as value stocks based on their book-to-price ratio (the value of the company relative to its market price) and the I/B/E/S (Institutional Brokers Estimate System) forecast long-term growth mean (forecasted relative long term earnings growth).

The Fund is classified as a “non-diversified fund” under the Investment Company Act which means that a relatively high percentage of the Fund’s assets may be invested in a limited number of issuers.

RIMCo uses a representative sampling indexing strategy to manage the Fund as described below.

Representative Sampling. “Representative sampling” is an indexing strategy that involves investing in a sample or subset of stocks that collectively has an investment profile similar to the Underlying Index. The stocks selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield) and liquidity measures similar to those of the Underlying Index. The Fund may or may not hold all of the stocks in the Underlying Index.

Tracking Error. An index is a theoretical financial calculation while the Fund is an actual investment portfolio. The performance of the Fund and its Underlying Index may vary due to transaction costs, foreign currency valuation, asset valuations, corporate actions (such as mergers and spin-offs), timing variances, and differences between the Fund’s portfolio and the Underlying Index resulting from legal restrictions (such as diversification requirements) that apply to the Fund but not to the Underlying Index or the use of representative sampling. “Tracking error” is the difference between the performance (return) of the Fund’s portfolio and that of its Underlying Index. Because the Fund uses a representative sampling indexing strategy, it can be expected to have a larger tracking error than if it used a replication indexing strategy. “Replication” is an indexing strategy in which a fund invests in substantially all of the securities in its underlying index in approximately the same proportions as in the underlying index.

Industry Concentration Policy. The Fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to approximately the same extent that its Underlying Index is concentrated. For purposes of this policy, securities of the U.S. government (including its agencies and instrumentalities) and repurchase agreements collateralized by U.S. government securities are not considered to be issued by members of any industry.

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