Russell Investments' announcement that it is reviewing its U.S. ETF business highlights the difficulty of companies entering an already competitive ETF marketplace and building a business from scratch, analysts say.
There is a fair chance that Russell will announce it is leaving the business of running its own ETFs when the review is over, said James Pacetti, an ETF industry consultant with S-Network.
“It was the wrong timing,” Mr. Pacetti said. “If they had introduced the products next year, they probably would have been successful.”
Russell spokesman Steve Claiborne in an e-mail said the company expects to conclude its review within the month. He would not comment further.
New entrants like Russell, which entered the ETF business in May 2011, have two hurdles: sell investors on their new products and convince them that their index methodology is valid, said Deborah Fuhr, a principal at ETF consultant ETFGI.
“They were trying to do next-generation ETFs, but it was too sophisticated for the marketplace right now,” Mr. Pacetti said. Investors are seeking simplicity amid volatile financial markets, he added.
Russell's U.S. ETFs combined had less than $350 million in assets under management as of June 30.
Mr. Claiborne said 30 employees in the ETF division had been laid off. In a interview with Pensions & Investments last year, Jim Polisson, CEO of Russell's ETF business, said there were about 40 employees involved with the company's ETF business.
The layoffs involve staff in ETF marketing and distribution, sources said.
Russell will continue to license its indexes for other ETF providers.