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Source, a leading European provider of exchange-traded funds, has announced the launch of the Source Russell Europe SMID 300 UCITS ETF (SMLM) on the Deutsche Börse.
The fund provides exposure to the Russell Europe SMID 300 Net TR Index, a highly tradable representation of small- and mid-cap equities in developed European markets.
The ETF offers access to a segment of the market which is gaining increasing investor interest; there are currently €9 billion assets in the ETF small and mid-cap space in Europe, up from €1.8 billion in 2012.
The index contains 300 highly liquid constituents. Constituents are selected from the Russell Global Index, which comprises 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 €2 million are then excluded. The remaining eligible stocks are ranked by tradability, 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.
In 2013, small- and mid-cap equities out performed large-cap equities across developed markets. In Europe, the Russell Europe SMID 300 Net TR index outperformed the Euro Stoxx 50 TR index by 7.50% and in the US, the Russell 2000 index, outperformed the S&P 500 TR index by 6.70% over the year.
According to the Morningstar fund database, when compared to active and index fund peers, the Russell Europe SMID 300 performed strongly over a 5 year period vs. both small and mid-cap funds. The Russell Europe SMID 300 delivered first quartile performance 45% of the time vs. small-cap funds and 55% of the time vs. mid-cap funds. Over the last 5 years, the index outperformed the average return of the universe of small cap funds 58% of the time; and mid-cap funds 73% of the time.
Ted Hood, CEO of Source, said: “In each market segment, Source aims to offer efficient and representative exposure, meeting investor needs. This product offers European investors access to a broad cross-section of Europe’s promising small- and mid-cap markets.”
Ron Bundy, CEO of Russell Indexes, added: “The Russell Europe SMID 300 Index has been designed with considerable input from the trading community. 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 ETF has a management fee of 0.35% per annum.