ETFs were made from passive indexing, but as investors demand more from their investments, the indexing landscape is beginning to change.
“We’re basically the Intel inside of your PC. You think of us as the portfolio manager that are underneath and managing that portfolio,” said Ken O’Keefe, Global Head of ETFs at FTSE Russell, at the Charles Schwab IMPACT 2018 conference.
Index providers had it relatively easy at the beginning stages of industry growth as they only need to provide market cap-weighted indexing methodologies that more-or-less tracked broad, widely observed benchmarks. However, as the industry grows and matures, there is more that goes into the back-end of the ETF production.
“Now, it’s much more. We sit down with ETF provider. They’re looking for something that is going to better meet the needs for financial advisors, and they’re turning to us for help in designing that,” O’Keefe said.
For example, FTSE Russell works with Invesco to provide alternative methodologies based on growth, value and equal-weighted indexing, including options like the Invesco Russell Top 200 Pure Value ETF (NYSEArca: PXLV), Invesco Russell Top 200 Pure Growth ETF (NYSEArca: PXLG) and Invesco Russell 1000 Equal Weight ETF (NYSEArca: EQAL).
Additionally, with the rising demand for smart beta or customized rules-based indexing, FTSE Russell has worked with OppenheimerFunds to launch a number of factor-based strategies, including the Oppenheimer Russell 1000 Dynamic Multifactor ETF (Cboe: OMFL) and Oppenheimer Russell 2000 Dynamic Multifactor ETF (Cboe: OMFS), which are multi-factor ETFs that select companies through exposure to a subset of multiple market factors, including low volatility, momentum, quality, size and value factors.
Investors can also tilt their portfolio to a specific factor through single-factor ETFs, such as the Oppenheimer Russell 1000 Value Factor ETF (OVLU), Oppenheimer Russell 1000 Size Factor ETF (OSIZ), Oppenheimer Russell 1000 Momentum Factor ETF (OMOM), Oppenheimer Russell 1000 Quality Factor ETF (OQAL), Oppenheimer Russell 1000 Low Volatility Factor ETF (OVOL) and Oppenheimer Russell 1000 Yield Factor ETF (OYLD).
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