State Street Global Advisors, the Boston, MA-based second largest issuer of exchanged-traded products with $328 billion in ETF assets, has launched the SPDR Russell 2000 ETF (TWOK). TWOK is a small-capitalization company focused equity fund and is set to rival the iShares Russell 2000 ETF (IWM) and the Vanguard Russell 2000 ETF (VTWO).
TWOK tracks the Russell 2000 Index, arguably the most popular small capitalization benchmark that many consider to be a barometer of small-cap performance in America. The index is a subset of the Russell 3000 Index and with approximately 2000 securities represents about 10 percent of the total market-cap of the former.
Needless to say, the vast number of constituents in the index results in a much diversified exposure. As of March 31, 2013, the index was comprised of 1,952 securities. The index is reconstituted completely every year to ensure larger stocks don’t distort the risk-reward characteristics of the benchmark.
The fund is well diversified across sectors and should appeal to investors who prefer wider exposure in the economy. No single constituent exceeds 0.33 percent of the total holding of the fund, thus minimizing nonsystematic/company specific risks.
Five sectors, including financials, technology, industrials, healthcare and consumer discretionary, contribute more than 10 percent each, ensuring a balanced combination of both value and growth.
The fund employs a sampling strategy and hence is not required to purchase all the securities represented in the index. Instead, it buys securities that exhibit risk and reward characteristics similar to the index.
Under normal conditions, the fund invests at least 80 percent of its total assets in the securities comprising the index. In addition, it may invest in equity securities that are not included in the index, money market instruments and cash and cash equivalents.
Although the fund is a late starter compared to IWM and VTWO, TWOK has a big advantage; it has a very competitive cost structure. With only 12 basis points in fees (expense ratio), the fund management expense is significantly lower than the 28 and 21 basis points charged by IWM and VTWO, respectively.
Disclosure: No holdings