Source and Rothschild launch equal risk smart beta ETF

Jan 30th, 2015 | By | Category: Equities

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Source, a London-based provider of exchange-traded funds and Risk Based Investment Solutions, a recently launched and wholly owned subsidiary of investment bank Rothschild, have announced the launch of the Source R Equal-Risk European Equity UCITS ETF.

Source and Rothschild launch equal risk smart beta ETF

Source and Rothschild have teamed up to launch an equal risk smart beta ETF. (Photo: Rothchild’s London office)

The fund, the first Rothschild product available using an ETF structure, is linked to the R Risk-Based European Equity Index Net TR.

This index 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,” explains 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. It has a management of 0.48%.

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